Should you stay or should you go?

Every financial adviser we went to presented endowments as guaranteed to pay off our mortgage with cash to spare. They barely even mentioned the risks or that there were alternative ways to pay off our mortgage.'

Adam and Ruth Thorpe's story is typical of those unhappy with their with-profits endowment. As young, first-time buyers they bought the policy in good faith at the end of 1998, just ahead of serious stock market losses.The plan was under the General Accident brand, which is now Norwich Union. At best they have been unimpressed, at worst seriously worried about their investment.

The couple, who live in Southport, Merseyside with their children Fred, 18 months and Jess, three months, have since established a standard repayment mortgage to pay off their home loan. They are undecided what to do with their endowment, which they continue to pay in to.

The Thorpes are not alone in trying to decide whether it is best to draw a line under their endowment and cash it in, or if there is another way to minimise the damage to their finances.

If you, like the Thorpes, are fed up with your endowment, you could consider surrendering it to the life company that sold it to you. But surrendering means forfeiting your terminal bonus, which can represent a large sum and will only be attached to the policy if it runs its full course.

The key problem for those looking to surrender is that surrender values rarely reflect the true value of the policy.

But there are a number of companies that may attempt to beat the price offered by your life office. There is a thriving market, in particular among German and Austrian investors, for unwanted with-profits policies as well as among UK investors looking for plans with set maturity dates to fit with fixed costs such as school fees.

Sometimes the margin between what a 'traded endowment policy' (Tep) market-maker and your life office will offer you is impressive.

Foster & Cranfield is a company that auctions off endowment policies to the highest bidder. Earlier this month it dealt with a Standard Life policy maturing in 2013 which had a surrender value of £7,736 but was sold at auction for £8,550. It also sold a Clerical Medical policy maturing in 2012 for £9,650 when the surrender value was just £8,794.

Andrew Forsyth, auctioneer at Foster & Cranfield, says: 'We feel there is a greater chance of getting a better price for your policy by going to auction where people will be competing to buy.'

Before the auction, vendors set their own reserve, ensuring the policy will not be sold for less than the most competitive non-auctioneer Tep market-maker price, for example.

Just how good an offer you will receive depends on a number of factors, including the strength of the company you bought the policy from and the length of time the policy has until maturity. If it is with a company in good financial health, such as Norwich Union, Standard Life, Clerical Medical and Royal London, it will be more attractive to market-makers and their clients.

Clive Scott-Tompkins, of independent financial adviser Towry Law, says: 'Bear in mind the Tep market will be selective, especially against policies with companies closed to new business, for example. You might only expect a very small increase in value from the market-maker.'

If your policy has between five and 10 years until maturity this will make it more attractive, as many buyers of secondhand policies are less keen for investment plans with longer terms.

The Thorpe's policy has a sum assured of £25,718 and the amount payable on death is £67,500. The monthly premium is £114.84. The policy is due to mature in December 2023, which makes it unattractive as it was taken up just before stock market performance started to flounder - and so will not have a great deal of annual bonuses attached.

Earlier this month Norwich Union offered the Thorpes £4,145.90, but they investigated whether they could get a better price elsewhere. A number of companies were unable to beat the offer, blaming the length of time until maturity. However, Tep market-maker PolicyPlus offered £4,710, beating the Norwich Union quote by nearly £600.

So should policyholders such as the Thorpes sell? David Carrington, director at PolicyPlus, says: 'Unless you really need the cash, it is probably a good idea to continue to pay into your endowment policy and this is particularly true if your company is in robust health, such as Norwich Union.'

He advises those looking to sell that the market is very changeable. If you are unimpressed with the quotes on offer this week, give it a fortnight and try again and you might see the price increase.

An alternative could be to make the policy paid up. This means you stop paying premiums and your sum assured will fall reflecting this, but the fund you have already built up will continue to attract bonuses until the maturity date.The maturity value will be cut and the payout on the policy still depends on the performance of the with-profits fund. The life insurance cover is also reduced.

Scott-Tompkins says: 'Making your policy paid-up is a halfway house option. Simply ask your insurance company for a paid-up value.'

There is no simple answer for those deciding what to do with their endowment, but policyholders should at least try Tep market-makers before making their decision.

· For a list of market-makers contact the Association of Policy Market Makers 020 7739 3949 www.apmm.co.uk. PolicyPlus 0845 055 3055, www.policyplus.co.uk; Foster & Cranfield (Auctioneers) 020 7608 1941, www.foster-and-cranfield.co.uk