In the midst of a divorce, individuals often face the dilemma of what to do with their endowment policies, which are frequently tied to the mortgage of the marital home. Family law experts suggest exploring all viable options before making a decision, emphasizing the importance of obtaining independent financial advice to make an informed choice.

Kevin Harris-James, a partner at Shakespeares LLP in Birmingham, highlights that during the division of assets in a divorce, endowment policies secured on the property are often hastily surrendered for their cash value, potentially overlooking more beneficial alternatives.

An endowment policy functions as a life insurance policy that pays out a predetermined sum either upon reaching a specified date or upon the insured’s death. These policies often include additional bonuses, making them a potentially valuable asset.

Low-cost endowment policies, commonly associated with “interest-only” mortgages, offer a blend of life insurance and investment benefits, providing security for lenders and potentially high returns for policyholders. However, surrendering these policies early, particularly within the first five years, usually results in receiving less than their market value due to initial administrative charges.

For policies older than five years, particularly those running for a decade or more, selling or auctioning the policy may present a more lucrative option. The secondary market for endowment policies has grown, with private and institutional investors willing to pay above the surrender value for these investments, which gain substantial value in their later years and are secured by the life of the policyholder.

Soliciting the services of reputable companies specializing in the sale of second-hand endowment policies can secure returns significantly higher than the surrender value, even after accounting for associated fees.

It is crucial for solicitors to present all options to their clients, allowing them to make well-informed decisions about their endowment policies. While the solicitor’s role is not to advise on the financial merits of auctioning a policy, they should ensure clients are aware of all possibilities, including the potential benefits of selling or auctioning their policy as opposed to surrendering it. This approach ensures clients do not overlook valuable opportunities during the challenging times of marital dissolution.