A Guide To Life Insurance - Surrender Values ....


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Surrender Values...

It is worth re-emphasising that the surrender value of the typical with profit endowment policy over 20 or 25 years will be less than the total gross premiums paid for the first four or five years.

Such policies are designed to produce the expected benefit over the stated period, and if life insurance companies also had to guarantee surrender values in the early years at a rate that represented a better return on money invested, then those who stuck with their contracts would get less.

Investment policy would be severely restricted, reducing the possibility of longer-term gains.

Low surrender values in the early years are a frequent cause of complaint against life insurance companies, but the only real answer is not to take out a long-term policy at all unless you are sure you can keep up the commitment. If you think you might not be able to, for purely financial reasons, then avoid such policies.

(It is sometimes possible to provide that premiums will not be payable in a period of illness or disability through a "waiver of premiums" option, though the cost of this will obviously depend on age and health as well as on the size of the premium.)

As we shall see later, guaranteed surrender values are available on flexible endowment policies, usually from the tenth year onwards. But one group of life insurance companies - the Canadian life offices - does specifically write guaranteed surrender values into all its with profit contracts. The surrender values guaranteed do not represent an attractive return on money invested in the early years, but they are often higher than those of companies which offer no such guarantee. However, such guarantees do have a cost, and the past and expected maturity results should be carefully compared.

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One popular use of endowment policies is in connection with private education.
The rise in school fees in recent years has marched along with inflation, and few parents can now afford fees for more than one child out of current income. Increasingly, therefore, advance provision through the use of endowments is made to ensure that funds will be available during the school years. The normal way is for the parent(s) to take out a policy or series of policies on their own life or lives, taking........ see: click here for The Versatile Endowment Policy - Example


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