I've mentioned it on here before in a form of questions, but it seems to be an area that there is not a lot of information/interest, so I'll take the bull by the horns and just get on with it.

The situation is as so: We recently cashed in our endowment policy due to under performance. Unfortunately we have passed their deadline date for complaints so can't go down the mis-selling route.

However, When we cashed the policy in, we were told its value was £5800. When I asked why it had so poorly performed (we had it for 14 years @ £50 per month), we were then told that the actual value was £10,800, but there was an "early encashment penalty". Yup, a loss of £5000 for settling early seems very unfair to me and I'm hoping to the courts as well.

Whilst I did write to them several months ago asking for abreakdown of the costs, we got a fob off letter telling us it was all "very complicated" (read - "you're too thick to understand").

I left it for a bit, but the more I've thought about it, the more I believe it's just plain wrong, so I've fired off my first letter - not quite as strong as a letter before action, but close to it. The company have always been fairly prompt in getting back to us, so I'll see what their response is fist before I send a letter before action.

I do intend to go to the trading standards as soon as the letter comes back and see if I can get any help from them, but I won't hold my breath on that one.

I shall keep people informed.

have you checked the policy terms and conditions in detail regarding the penalty of cashing it in early? If it is a penalty then you could probably sue them - the same as what you would do regarding bank charges!

They won't give me any details. I asked for a copy of the terms and conditions - they never sent it. I asked for a breakdown of the costs - they never gave it.

I can only assume its the same line as the bank and they need to be sued.

Worse case scenario - I sue and loose. It won't cost me a lot and I'm sure I'll learn a lot in the process!

Hi Gordon

I am an Independent Financial Adviser and I have previously asked an actuary of one of the larger insurance companies how a surrender value is worked out. It is genuinely a very complicated calculation (literally two full pages of calculations)which I don't belive is fair because of the figures used for estimating growth rates and inflation. However, there is no penalty involved here and the surrender values are worked out according to this strict calculation that aims to provide the true value of the endowment. The insurance company can provide you with the calculations and I suggest you write back and insist that you want to see how it was worked out. I am not sure if you have a legal right to demand this but I expect that you do.

Hi Alexifa,

Thanks for the help. Please don't misunderstand me when I say that the banks give the same excuse "there is no penalty here". Chances are you are right, but I have written to them previously asking them for a breakdown and their response was:

"We are unable to prepare a numerical breakdown of how the surrender value has been calculated. However, broadly speaking, the surrender value is calculated using an actuarial formula by discounting the basic sum assured plus bonuses from the expected date of payment back to the present date and deducting the discounted value of the expected future premiums.

Naturally the actual calculation method is somewhat more sophisticated. However the above description does give a good idea of the reasoning behind the calculations.

As detailed above the investment income and other expenses are not attributed seperately. These expenses include marketing and litereature costs, administration setup costs, regular administration costs such as premium collection and annual bonus mailings. Thus bearing in mind the above surrender value of the policy less the individually incurred costs is not available."

That was unsatisfactory as far as I'm concerned. I've written again, with no threat of legal action, or deadlines, but have asked again for a breakdown of the costs as £5000 seemed a tad excessive to say the least.

The bottom line is we had invested approx £50 per month for the last 15 years.

We invested £9000

They gave us just under £6000

The policy was worth £11000

If you can help further I willingly accept - any ideas of how to take this further would be great, but for now I'll just sit back and wait for the response.

Thanks again

Hi Gordon

Which insurance company is it?

Phoenix

OK, so it was probably Royal Sun Alliance when you took it out. This is a very poorly performing with profit fund. I'm sure you know that the current bonus rates are 0% and likely to stay that way. You have been unlucky with the insurance company you ended up with as their surrender values are one of the poorest. I believe that the surrender value is mostly accurate in that this is probably a fair value of the fund.

However...I have thought about this and Phoenix (like any other with profit provider) do not charge an explicit management charge. This means that they don't actually charge you a percentage for managing the fund but instead they take their 'administrative costs' directly from the fund and this is reflected in the rate of return. I think that in calculating a surrender value, Phoenix will take into account the expenses (ie management charges) they will lose for the period you are opting out of. This could be their 'liquidated damages' for your breach of contract but I think it would be just about impossible for them to give you a breakdwn of what these damages are.

In summary, in principle you may be correct but this would be something any with-profit operator would vigourously defend as there are £100s of millions at stake.

Good Luck

Thats great Alexifa - it's helping me to get a clearer persepective, and yes, you are right, It was Royal Sun Alliance.

However, I thought it wasn't legal to charge for future lost profits, i.e. for something that they haven't earnt any money on as yet?

That certainly seems to be the case with banking from what I've read on this site - you have any ideas on this matter?

As always, your help is appreciated.

I agree that they can only charge for their actual losses or a genuine pre-estimate of losses. What I am saying is that it would be very difficult for them to show what any losses would be and so you may have a case. How you would go about sueing for unlawful charges I don't know. Personally, I would not try. But by all means continue complaining and making a fuss. They might offer you something to go away.

I guess that's what I'm hoping. They have to justify their £5,000 figure somehow!

Thanks again

Im with the same company as you, Phoenix, formerly Royal and Sun Alliance.

I took out a policy in 1991 to mature in 2016 with a return of 45,000.

Initially i paid it off monthly, but then got into financial difficulty and didnt pay for a while. I think it lapsed, and then in 1999 I had it reinstated and last year I cashed it in and got just over 6k back.

To be honest, ive never understood how it worked. So have no idea if I was stitched up and as far as I know, even if you have cashed it in, you are entitled to ask for compensation for it initially being misold.

Eventhough the so called deadline for doing so has passed, I would still try to pursue the compensation route and intend to go back over things shortly as ive just simply had too many other things to deal with up till now.

Id be interested to know how you get on with youre claim and will check here to see what youve updated.