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Exiting with-profits: Ten things you need to consider,,,

The Great Escape: If you are thinking about exiting your with-profits investment there are important things to consider first

Endowment policies and with-profits investments have proved to be a major disappointment to many savers in recent years.

While some with-profits policies have done well, the industry has been dogged by mis-selling and poor performing investments that have failed to meet expectations.

With-profits is sold as a cautious investment that helps smooth out the bad years by keeping aside some of gains in the good years.

However, for many investors projected growth has proved over ambitious and simply paying into a best buy savings account could have proved more lucrative.

An extra level of complexity is added by the fact that due to their complicated structure, it is far harder to work out how a with-profits policy is performing than with an investment fund.

All of this means that many savers end up ditching poor performing policies.

But another big problem savers holding with-profits policies face is that some are hit with big penalties for leaving early, in the form of Market Value Reductions, while calculating projected growth can be difficult.

That means what if you are thinking of staging a great escape from your with-profits investment, or end up staying, there are some important things to consider.

  More... Check the best savings rates Check your investment fund's performance FREE GUIDE: How to review your with-profit bonds

Ten things to consider before exiting with-profits

1. Remember why you took the policy out: If your policy is a mortgage endowment, was the maturity payment to cover a specific purpose such as repayment of a mortgage? If it's a pension policy, look at the projected pension payment on retirement and see if it covers your retirement needs.2. If the policy no longer meets your needs, have you made additional provisions such as changing your mortgage into a repayment one or increasing your pension contributions / made other financial arrangements for your retirement?3. If you are thinking of surrendering your endowment policy or moving your pension:

- Contact your provider for a projection to see what your policy might be worth at retirement or maturity.

- Check you don't have valuable guarantees in place which only pay out once the policy matures or when it is converted into an annuity. You may also have the opportunity for a good final/terminal bonus. For many policies, the bonus paid at the end could be considerable and it could be worth hanging on for this.4. Check if the policy includes life cover. The policy could include a valuable life insurance benefit which would be lost if the policy is cancelled. This is particularly important for consumers in poor health who may struggle to get a new life insurance policy elsewhere or pay more for it.

5. Does your policy have a Market Value Reduction? This is essentially an early exit penalty and can take almost 20% off the value of your investment if you jump ship. MVRs are supposed to cut the face value of the bond — what they tell you it's worth — to reflect your actual share of the with-profits fund when the stock market falls. Whether you have to pay an MVR depends on who your bond is with, when you bought it and the value of the stock market when you cash it in. Speak to your provider to find out the exact details - and get them in writing.6. Does the policy have a Market Value Reduction (MVR) free date? Some policies have these built into the terms and conditions which means they can be cashed-in without having to pay an MVR (which reduces the value significantly when you sell-up early).7. Are there any tax implications which will reduce the amount you receive on surrender? It could be worth speaking to an adviser about this.8. As an alternative, find out if you can leave the policy paid up where you don't pay any more premiums but it remains invested in the fund and some life insurance benefits are received.9. Make sure your personal details such as name and address are up to date so the insurance company can let you know when the policy matures and provide essential information about the policy. Don't forget to inform your insurance company when you move home.10. If you haven't received a statement for some time, contact your provider - it may be that they don't have your most recent details.

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