Endowments Suck

I am in the unfortunate position of being the owner of an endowment. For the lucky people who have never come across an endowment it is an investment product that includes life insurance and is normally used to pay off mortgages.

When we bought our house our mortgage advisor told us that endowments were the way to go. They often beat their target, leaving you a nice little surplus at the end of your mortgage term, and should break even after five years.

Ha! So having had my endowment almost 6 years it should be worth something close to what I have paid in? Dream on. I have paid in over £9000. The surrender value is currently about £6700. £6700!!

I am trying not to think about this too hard to avoid getting angry. Exactly what value an endowment adds over an index tracker fund with a separate life insurance scheme is hard to fathom. What is the point of bundling life insurance with an investment product? Isn't it just a way of making the product more obscure, allowing higher charges?

Apparently one of the reasons the surrender value is so low is because for the first couple of years most of the payments are swallowed by charges. But what are the charges for? The money just goes into a couple of funds and then there is the insurance part which does not require any management. The whole thing seems like a complete rip-off.

Aghhh! Any financial product this opaque should be taken outside and shot. The good news is that UK homeowners are now much wiser to the disadvantages of endowments and they are rarely sold.

Today I am going to surrender my endowment. Yippee! As a unit-linked endowment none of the "sell-us-your-endowment" companies are mad enough to buy it so I will simply be asking the insurance company to cough up.

The good bit? I will then be investing the money in a select few British blue chips. The joy of capital allocation! Selecting the companies to invest in will be the subject of my next article.

Adiós!