Very little value in surrendering

DO NOT surrender a life insurance policy, unless you really have to. You are likely to get very little money back - perhaps even less than you put in.

The advice comes this week from the Consumers' Association, which is urging policyholders not to panic in the wake of recent warnings that some endowment policies may not be sufficient to repay the mortgage without a rise in premiums. Jane Vass, a spokesman for the CA, says: 'The panic is not justifiable. We have more complaints about surrender values than anything else.'

According to the CA a recent survey found that if you surrender after three years, a 25-year, with-profits endowment policy taken out by a 29-year-old who had paid pounds 1,800 in premiums was worth an average of about pounds 1,173.

After 20 years the surrender value was pounds 35,163 with a total of pounds 12,000 paid in. If the policy had run the additional five years to the end of the term, the maturity value was pounds 90,118, having paid an extra pounds 3,000 in premiums. This is because there is a terminal bonus.

If you are worried about your endowment policy, then contact the insurance company or broker who sold it to you. If you are not satisfied with their impartiality, get advice elsewhere.

Penny O'Nions of the independent financial advisers De Havilland says: 'Ask about all the options available to you. Traditional, with-profits policyholders need fear little even in the light of the new reduced bonus rates. A unitised with-profit policy should be adequate to cover the mortgage at the end of the selected term. But check now with the person who sold you the policy.

'Wholly unit-linked policies should be looked at. If there is any doubt as to the sufficiency of the amount of the pay-out you could consider a more secure form of investment, for example a Tessa, to supplement any shortfall.'

If you are taking out a policy, you have 14 days to cancel. The cancellation notice should be with the policy document. You can always make an existing policy paid- up. You pay no further premiums, but leave the money in until the end of the term.

You can sell some types of policies. But the policy you want to sell because of its poor performance is likely to be equally unappealing to the auctioneers and policy sales networks.

Christopher Dobie, of auctioneers Beale Dobie, says that the policy must have a surrender value of more than pounds 2,000, it must have been running for 25 per cent of its life or five years, with normally no more than 15 years to maturity.

The auctioneers will only sell with-profits policies, including low-cost. They do not sell unit-linked or unitised policies.

Your insurance company may offer low-interest loans, which you can use to pay premiums.

Before switching from an endowment to a repayment mortgage, consider carefully the difference in the monthly repayments, and the costs involved. You will also still need some form of life insurance.