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Answer Upon - Endowments and Endowment Shortfalls - What You Need To Know
Does this sound familiar? You have a newsletter that needs to go out in a few days, but you just can’t come up with a good article to write. You have a serious case of writer’s block. Or, you know you should be adding more content to your site on a regular basis to keep the search engines (and of course your visitors) happy, but you just can’t find the time to sit down and write articles every week. There’s an easy solution to both problems. Hire a ghostwriter to write the articles for you.Basically, a ghostwriter is someone that writes articles for you that you get to claim as your own and publish under your own name. No one other than yourself and the ghostwriter has to know that you didn’t write the article yourself. Once you pay for the article, you hold all rights to it and can publish it wherever and however you see fit.Now let’s talk about the hard part. How do you find a good ghostwriter? You can start by posting a small project on elance or guru.com. Anyone interested in writing for you can bid on the project and you will get to choose your writer from the bidders. I mentioned posting a small project because you just don’t know exactly what you are going to get until you receive the finished articles. A small proj
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to swit
At some point in the workday, most of us have to work with customers, citizens, vendors or suppliers. And, unfortunately, these interactions can sometimes be tinged with anger. Aside from the normal customer service behaviors we rely on when someone displays anger, what else can we do?The most common answer I get when I ask what someone does to deal with an angry customer or co-worker is: "Let them vent."Okay, that's good for starters. The problem is that with this technique is that often a customer decides that you are willing to be dumped on; that you'll take their bad day off their shoulders; that you'll put up with a great deal of negativity. Not exactly a formula for lowering stress or heightening your problem solving abilities.What I have found to be a valuable tool instead is to understand anger, not try to endure the person yelling at you. Anger has been identified as a non-emotion. That's right. Anger is NOT on the human barometer for emotional responses. When researchers have worked with people to calibrate or measure emotions like checking respiration, heart rate, sweat...the emotion ANGER doesn't compute!What does register during these tests are two different emotions: fear and sadness.
This article attempts to answer some of the questions and concerns you may have about the way endowments work, what's happening to them, and what you can do to ensure your mortgage is paid off at the end of the term if you have an endowment mortgage.
What is an endowment mortgage?
There are two basic types of mortgage. The first is a repayment mortgage, where you make one monthly payment to the lender which is part interest and part repayment of the original capital.
Then there are interest-only mortgages, where your monthly payment to the lender is just the interest on the original loan and the mortgage debt remains unchanged. You then make separate payments into an investment scheme (such as an endowment), with the idea being that at the end of the mortgage term this investment will have grown sufficiently to repay the mortgage.
An online mortgage calculator can give you an idea of the difference in payments to your lender between an interest-only mortgage and a repayment mortgage.
Interest-only endowment mortgages were very popular in the 1980s and 1990s and were often chosen in the belief that the endowment would end up being large enough to clear the mortgage and still leave a tidy sum of money left over as a bonus.
How do endowments work?
An endowment is a long-term savings policy, typically running for ten to twenty-five years. An endowment plan has what is known as a "sum assured" value. If the policyholder dies during the life of the endowment, it pays out the sum assured. In the case of endowments linked to mortgages, the sum assured is equal to the size of the mortgage. The payout in the event of the death of the policyholder is guaranteed but, if the policyholder survives, the final value of the endowment at the end of its term is not guaranteed.
Endowments can be unit linked, which means that you buy units in a fund, or they can be "with profits".
How does money grow in a with profits endowment?
There are two ways in which a with profits endowment can increase in value. Firstly, the insurance company may add a bonus to your policy each year. This is known as a reversionary bonus and is usually a percentage of the amount of profit made by the fund over the previous years.
The amount added in this way may only be a small amount. However, once added, these bonuses cannot be taken away - hence the name reversionary bonus - and will belong to you when the policy matures.
Then there is the terminal bonus. This is a separate sum of money which the insurance company can add to your endowment policy when it matures. These terminal bonuses are discretionary and may not be applied at all.
What are the advantages of with profits endowments?
The idea of a with profits endowment is to smooth out fluctuations in the stockmarket.
With a non-with profits endowment, your investment is linked 100% to the stockmarket. Therefore, there is always the possibility that the investment value could fall just at the time when you need the money.
By using with profits endowments, insurance companies get round this problem by giving you a slightly smaller percentage of any fund growth as an annual bonus and try to smooth out future annual bonus declarations.
The point of this is to try to ensure that, no matter what happens to the returns of the fund, you are guaranteed a certain minimum amount when then endowment policy matures.
Why don't you get the entire year's gains as a bonus?
On the one hand, the insurance companies and their fund managers want you to have as much security as possible - hence the reversionary bonuses which cannot be taken away at a later date.
On the other hand, they are also trying to maximise long-term growth by investing your money in stocks and shares, property, gilts, and cash. All of these involve a degree of risk.
What is the problem with endowments?
Anyone taking out an endowment policy, whether on a with profits or unit linked basis, has to be given a written illustration by the insurance company of how much the policy might be worth at maturity. When providing these illustrations, insurers have to make an assumption as to the rate of growth per annum that will apply to the money you are paying into the endowment. This assumed rate is known as the projected rate, and there is no guarantee that this rate will be met in reality.
Until a few years ago, the projections were usually based on a mid-range growth rate of 7.5% per annum. In the early 1980s, the assumed growth rates used in the illustrations were even higher. Therefore, the monthly endowment premiums were low by today's standards, because they were set to reflect these high projected growth rates.
Interest rates and other economic factors, such as stock market growth and interest rates, are much lower now than they were in the 1980s and 1990s, so it has now been necessary to reduce projected rates of growth for people taking out a new endowment policy today. As a result, the monthly premiums for a new endowment policy today will be higher than they were in previous decades.
How does this affect existing policyholders?
Because actual growth rates have been lower than the projected 7.5% rate, an endowment policy taken out in the 1980s or 1990s may now not be worth enough at maturity to pay off the interest-only mortgage to which it is linked.
Insurance companies are therefore assessing the state of people's policies and contacting them to advise what action they should take now to avoid a potential shortfall at the end of their mortgage.
How will I be affected?
In most cases, if you took out a with-profits endowment in the mid-1980s or earlier, the fund should be sufficient at maturity to pay off the mortgage. This is because the money in your endowment policy will have benefited from the higher rates of interest and better stock market growth of the 1980s.
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to switc
Social networking has become kind of a buzzword lately – myspace, blogging, squidoo – they have all become great sources of traffic.OF course, you have to know how to work them. And you have to work them. You cannot just create a site and then let it sit around – you have to go in and make it happen – you have to work the sites.You have to put fresh content up everyday – and that goes for blogs, for myspace, for squidoo – really for all of them.One thing I like about squidoo is that it is now working on a ranking system for just the last 14 days – which means that if you go in and do everything right, your site can rank better than someone who has been in there from the beginning.That’s right – you can rank right up there with the big dogs – in my guess, you can do it in just 14 days – you would need 14 days to be on equal footing.Now don’t get me wrong, you are still going to have to go in and make changes everyday, you are going to have to get linked up and put lots of good content on your pages, and get people to rank your page favorably – but at least you can do it fast.I am a big believer in fast.You have seen what I do – writing articles, writing books – I am just a really big beli
How do endowments work?
An endowment is a long-term savings policy, typically running for ten to twenty-five years. An endowment plan has what is known as a "sum assured" value. If the policyholder dies during the life of the endowment, it pays out the sum assured. In the case of endowments linked to mortgages, the sum assured is equal to the size of the mortgage. The payout in the event of the death of the policyholder is guaranteed but, if the policyholder survives, the final value of the endowment at the end of its term is not guaranteed.
Endowments can be unit linked, which means that you buy units in a fund, or they can be "with profits".
How does money grow in a with profits endowment?
There are two ways in which a with profits endowment can increase in value. Firstly, the insurance company may add a bonus to your policy each year. This is known as a reversionary bonus and is usually a percentage of the amount of profit made by the fund over the previous years.
The amount added in this way may only be a small amount. However, once added, these bonuses cannot be taken away - hence the name reversionary bonus - and will belong to you when the policy matures.
Then there is the terminal bonus. This is a separate sum of money which the insurance company can add to your endowment policy when it matures. These terminal bonuses are discretionary and may not be applied at all.
What are the advantages of with profits endowments?
The idea of a with profits endowment is to smooth out fluctuations in the stockmarket.
With a non-with profits endowment, your investment is linked 100% to the stockmarket. Therefore, there is always the possibility that the investment value could fall just at the time when you need the money.
By using with profits endowments, insurance companies get round this problem by giving you a slightly smaller percentage of any fund growth as an annual bonus and try to smooth out future annual bonus declarations.
The point of this is to try to ensure that, no matter what happens to the returns of the fund, you are guaranteed a certain minimum amount when then endowment policy matures.
Why don't you get the entire year's gains as a bonus?
On the one hand, the insurance companies and their fund managers want you to have as much security as possible - hence the reversionary bonuses which cannot be taken away at a later date.
On the other hand, they are also trying to maximise long-term growth by investing your money in stocks and shares, property, gilts, and cash. All of these involve a degree of risk.
What is the problem with endowments?
Anyone taking out an endowment policy, whether on a with profits or unit linked basis, has to be given a written illustration by the insurance company of how much the policy might be worth at maturity. When providing these illustrations, insurers have to make an assumption as to the rate of growth per annum that will apply to the money you are paying into the endowment. This assumed rate is known as the projected rate, and there is no guarantee that this rate will be met in reality.
Until a few years ago, the projections were usually based on a mid-range growth rate of 7.5% per annum. In the early 1980s, the assumed growth rates used in the illustrations were even higher. Therefore, the monthly endowment premiums were low by today's standards, because they were set to reflect these high projected growth rates.
Interest rates and other economic factors, such as stock market growth and interest rates, are much lower now than they were in the 1980s and 1990s, so it has now been necessary to reduce projected rates of growth for people taking out a new endowment policy today. As a result, the monthly premiums for a new endowment policy today will be higher than they were in previous decades.
How does this affect existing policyholders?
Because actual growth rates have been lower than the projected 7.5% rate, an endowment policy taken out in the 1980s or 1990s may now not be worth enough at maturity to pay off the interest-only mortgage to which it is linked.
Insurance companies are therefore assessing the state of people's policies and contacting them to advise what action they should take now to avoid a potential shortfall at the end of their mortgage.
How will I be affected?
In most cases, if you took out a with-profits endowment in the mid-1980s or earlier, the fund should be sufficient at maturity to pay off the mortgage. This is because the money in your endowment policy will have benefited from the higher rates of interest and better stock market growth of the 1980s.
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to swit
Why is it that webmasters are so quick to blame Google if their website falls down the search rankings, or out of the rankings altogether? Can it never be their own fault?I read an amusing forum post headed “What’s up with Google?”. The writer had a website just 2 months old, which had only had 2 visits from Googlebot, a Google robot. The poster was a bit grieved, and was blaming Google.It seems they had extrapolated their own situation into one they had witnessed with other webmasters on another forum. They were also upset, this time by Google’s latest update, as their websites had been badly hit. Of course, the drop way down the rankings had seriously affected their income; what right had Google to do that to them, they were demanding to know?So grieved were this group of webmasters they were trying to drum up support for a boycott of Google. Big G was too big for its boots and was going to be brought down by these few innocent souls. Who were they trying to kid, apart from themselves?What was it these webmasters had in common that brought them together in this “bring down Google” brigade? Apparently, their websites were directories.Now, let’s apply some intelligent marketing thought to this little
The idea of a with profits endowment is to smooth out fluctuations in the stockmarket.
With a non-with profits endowment, your investment is linked 100% to the stockmarket. Therefore, there is always the possibility that the investment value could fall just at the time when you need the money.
By using with profits endowments, insurance companies get round this problem by giving you a slightly smaller percentage of any fund growth as an annual bonus and try to smooth out future annual bonus declarations.
The point of this is to try to ensure that, no matter what happens to the returns of the fund, you are guaranteed a certain minimum amount when then endowment policy matures.
Why don't you get the entire year's gains as a bonus?
On the one hand, the insurance companies and their fund managers want you to have as much security as possible - hence the reversionary bonuses which cannot be taken away at a later date.
On the other hand, they are also trying to maximise long-term growth by investing your money in stocks and shares, property, gilts, and cash. All of these involve a degree of risk.
What is the problem with endowments?
Anyone taking out an endowment policy, whether on a with profits or unit linked basis, has to be given a written illustration by the insurance company of how much the policy might be worth at maturity. When providing these illustrations, insurers have to make an assumption as to the rate of growth per annum that will apply to the money you are paying into the endowment. This assumed rate is known as the projected rate, and there is no guarantee that this rate will be met in reality.
Until a few years ago, the projections were usually based on a mid-range growth rate of 7.5% per annum. In the early 1980s, the assumed growth rates used in the illustrations were even higher. Therefore, the monthly endowment premiums were low by today's standards, because they were set to reflect these high projected growth rates.
Interest rates and other economic factors, such as stock market growth and interest rates, are much lower now than they were in the 1980s and 1990s, so it has now been necessary to reduce projected rates of growth for people taking out a new endowment policy today. As a result, the monthly premiums for a new endowment policy today will be higher than they were in previous decades.
How does this affect existing policyholders?
Because actual growth rates have been lower than the projected 7.5% rate, an endowment policy taken out in the 1980s or 1990s may now not be worth enough at maturity to pay off the interest-only mortgage to which it is linked.
Insurance companies are therefore assessing the state of people's policies and contacting them to advise what action they should take now to avoid a potential shortfall at the end of their mortgage.
How will I be affected?
In most cases, if you took out a with-profits endowment in the mid-1980s or earlier, the fund should be sufficient at maturity to pay off the mortgage. This is because the money in your endowment policy will have benefited from the higher rates of interest and better stock market growth of the 1980s.
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to swit
There are a number of web hosting plans that are appropriate for small businesses. The type of plan will depend on the type of site you have. You may require a small business web hosting option that includes e-commerce. You may need something that will keep track of your customer list. Your site may be simple and only include product and company information. Whatever your situation, there is a web hosting plan out there that is right for you.To find a small business web hosting plan that is right for your company, you will first need to decide exactly what your site will be used for. Do you want it to be very informative and content driven? Would you like to sell your products online? Do you just need a web hosting plan that will accommodate a simply designed website? Do you need a database?If your site is already developed and ready to go live, it will be fairly simple finding a web hosting plan that will accommodate your small business. All you will need to do is collect a list of companies that offer small business web hosting plans and then see if they accommodate the features that you need. You will need to research carefully, because web hosting companies don’t always disclose the finer details on their main pages.h per annum that will apply to the money you are paying into the endowment. This assumed rate is known as the projected rate, and there is no guarantee that this rate will be met in reality.
Until a few years ago, the projections were usually based on a mid-range growth rate of 7.5% per annum. In the early 1980s, the assumed growth rates used in the illustrations were even higher. Therefore, the monthly endowment premiums were low by today's standards, because they were set to reflect these high projected growth rates.
Interest rates and other economic factors, such as stock market growth and interest rates, are much lower now than they were in the 1980s and 1990s, so it has now been necessary to reduce projected rates of growth for people taking out a new endowment policy today. As a result, the monthly premiums for a new endowment policy today will be higher than they were in previous decades.
How does this affect existing policyholders?
Because actual growth rates have been lower than the projected 7.5% rate, an endowment policy taken out in the 1980s or 1990s may now not be worth enough at maturity to pay off the interest-only mortgage to which it is linked.
Insurance companies are therefore assessing the state of people's policies and contacting them to advise what action they should take now to avoid a potential shortfall at the end of their mortgage.
How will I be affected?
In most cases, if you took out a with-profits endowment in the mid-1980s or earlier, the fund should be sufficient at maturity to pay off the mortgage. This is because the money in your endowment policy will have benefited from the higher rates of interest and better stock market growth of the 1980s.
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to swit
If you have been looking for a way to make money online without spending a fortune then Blogging to the Bank is just for you. This method will offer you a way to start earning money online without spending a dime.I bought Blogging to the Bank and I will let you know how I feel about it.The ebook Rob has written is short and to the point. He has given you 7 steps to follow that are outlined below.1. How to choose a marketThis is so important and Blogging to the Bank will show you how to pick and choose markets that will make you money.If you want to create a massive income online, Rob shows you how to market the product you choose and beat the competition.2. BloggingThis is how you will make money. Blogs are free websites that you can post information to. They are sort of like a journal. There are many blogging websites around but Rob says to use Blogger.com. It is free and very easy to post messages to. You will get a step by step tutorial in this section.3. Profit pulling ads to put on your blogCreative ideas that will have your visitors buying in no time.4. Content is KingThis is a short chapter about the content of your blog. Not too much detail here. I wish
But, the shorter the length of time your endowment has been running, the greater the potential for a shortfall at maturity.
It is impossible to predict exactly how large this shortfall may be, as so much depends on future fund performance between now and the time when your endowment matures. Insurance companies are trying to assess the issue by looking at how much has been accumulated in your fund so far and making more conservative estimates about future growth.
What can I do now?
There are a number of options:
1. You can increase payments into your existing endowment policy (subject to Inland Revenue rules), or take out additional endowment policy with the same insurer or a different insurer. However, you may decide you don't want to be tied into another endowment.
2. You can ask to extend the term of your endowment policy, subject to your mortgage lender agreeing. This is probably not a good idea if it means your policy would continue beyond your retirement age.
3. You can set up an additional investment, such as an individual savings account (ISA). An ISA may be cheaper and can offer a wide range of investment choices to suit your attitude to risk.
4. You can ask your mortgage lender to switch part of your mortgage (equivalent to the projected shortfall on your endowment) to a repayment mortgage. You can get an idea of the costs of the new repayment part of your mortgage by using an online mortgage calculator.
5. You can use any other spare lump sum to pay off part of your mortgage. You will need to check first to see if this would make you liable for any early redemption penalties from your lender.
Which is the best option?
Everyone's situation is different, and everyone has their own particular preferences. If you are unsure what to do, you should take professional mortgage advice to help you review your options and come to a decision as to what to do.
Should I just cash in my endowment?
This would almost certainly be a mistake. Many endowment policies are structured such that the management charges are highest in the early years. If you surrender the policy early on, the amount you get back may well be less than the amount you have paid in up until now.
Also, you need to bear in mind that a large proportion of the final value of a with profits endowment depends on its terminal bonus. The size of this bonus will not be known until the policy matures.
So, the best strategy is normally to keep the endowment in place. If you need to cut down on your monthly outgoings, you can leave a policy "paid up" (although you may incur penalties for doing this). This means that you do not pay any more money into the endowment, but leave it to mature on the original date for a lower amount. If you do this, you will need to make sure you still have sufficient life cover to protect your mortgage.
It is possible to sell endowment policies on the second-hand endowment market. The amount you get will depend on the policy and how long it has left to run. Again, this is an area where you would be well-advised to talk to a professional before taking any action.
Please note that this article is for general guidance only and does not constitute financial advice. You should seek professional advice with respect to your own specific circumstances.
------
Copyright 2004 David Miles. You are welcome to reproduce this article on your website, so long as it is published "as is" (unedited) and with the author's bio paragraph (resource box) and copyright information included. In addition, all links to external websites must be left in place.
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