The majority of endowment policyholders do not maintain their endowment policy to the end of the policy term. There are many reasons why the original policyholder may want to surrender their with-profit endowment policy before the maturity date, including dissatisfaction with performance, divorce, change of mortgage or a need to generate capital.

Many people whose endowment policies are underperforming decide upon surrendering their policy and switching to another investment vehicle to accompany their interest only mortgage or moving to a repayment mortgage. However, simply surrendering your traditional or unitised with profit endowment policy should only be undertaken as a last resort.

The reason for this is that most with profit endowments to not grow in a linear fashion. They generally grow quickest near the end of their life, especially owing to the large terminal bonuses that are added at the end of the contract period. For this reason, cashing in the policy early can leave you with a greatly diminished sum of money, often even less than you have actually paid in.

You will also suffer what the life assurance industry calls "early surrender penalties" - which amount to charges deducted from the current value of the investment. The reason life assurance companies give for early surrender penalties is that they calculate their charges on the assumption that the policyholder will maintain the policy for the agreed term. A high proportion of the company's costs are incurred when the policy is first set up, though the charges to the policyholder are then spread over the life of the policy.

Alternatives to surrender

Fortunately, there are plenty of options open to you apart from surrendering your policy. Unfortunately, very few people actually know what they are - one survey claims that only 15 percent of people are aware that they can sell an endowment policy on, often for substantially more than its current cash-in value.

The options available to you are:

1. Retain your policy: Even if your policy is underperforming today, there is some chance that it may recover in time to meet your investment target by the end of the contract. Historically, endowment policies that have reached maturity have produced very good returns for the policyholder.

2. Loan-back: Some insurers offer a loan-back facility within an endowment policy contract, whereby you take out an additional loan secured against the policy. Using this option may solve short term cash flow problems and still allow you to retain your policy. The loan may be repaid out of the final proceeds of the policy at maturity date, on surrender or on a valid claim. You can also elect to repay the loan on request. Not all life offices offer this facility or the same terms, so contact your insurer if you wish to find out more about this. Your life office will be happy to discuss this option with you.

3. Paid up policy: This is where no more premiums are being paid to your plan. Life cover will continue with charges being deducted from the value of your fund. Once the value of your fund is nil, cover will cease and no further benefits will be payable. Your fund value, at the time your policy became paid up, may be sufficient to continue to provide life cover right through to the maturity date of your plan, any surplus funds remaining at the maturity date of your policy would be paid to you.

4. Surrender your policy: After your plan has been in force for one year and one year's premiums have been paid, if you stop paying premiums, you can realise any value in your plan and take it as a cash sum. The policy contract then ceases as do all benefits under that contract.

5. Premium holiday: This option allows the policyholder to take a short break from paying their premiums . It is unlikely that this facility will be available on traditional with profit endowment policies. Nevertheless, you should still speak to your life office.

6. Sell your policy: This is an option which many people are unaware of, but for many people it could be the most financially viable. The next page explains why.