UK-listed Close Brothers has launched a bank loan product tapping into £5.6 billion ($8.7 billion) of endowments that could potentially be cashed in early.

The bank said that endowment-holders with two to five years to run could take out a secured loan against their policy while still retaining their life cover and right to claim their terminal bonus.

“We believe that up to a third of endowment customers are unhappy with their policies and around a fifth are planning to cash in early, so clearly there is considerable concern about the future of endowments,” said John Taylor, commercial director of Close Brothers' retail division. “With more than 2.5 million policyholders and £30 billion invested in the sector there is a real need for more options for customers choosing between continuing to pay into their endowment or selling or surrendering early,” he said.

According to research undertaken by Close Brothers, some 18 per cent of people with with-profits endowments plan to cash their policies in early. This means they will miss out on any terminal bonuses and life cover. Figures from the Financial Services Authority, the UK regulator, show around 2.5 million with-profit endowment policies are in force with customers paying in an estimated total of £166 million a month at an average of £66 a month, the bank said.

Additionally, the bank said that around 31 per cent of people with endowments are unhappy with the performance of their funds but are unsure whether to keep paying into the policy. About 72 per cent of financial advisors questioned by Close Brothers say clients with endowments from stronger-performing endowment providers should not cash in.

Other figures show wide divergence in with-profits funds: 10-year funds had average growth rates for 2011 of -3.3 per cent, while 25-year funds had average growth rates of +16.8 per cent. Payouts at the weaker performers are expected to keep falling.

When people surrender policies to life companies, they generally receive on average between 3 per cent and 15 per cent less than those who trade them, according to the Association of Policy Market Makers, Close Brothers said. But in both cases, people lose the rights to any terminal bonuses and life cover.

Explaining its new product, Close Brothers said anyone applying for the loan will receive a decision in principle within 24 hours on whether the application will be accepted. The bank will take over payment of existing direct debits to the life company and on maturity will contact the life company to repay the loan with surpluses sent to the customer.

The minimum time to maturity for the policy has to be 24 months and the maximum 60 months. The APR of this product is typically 9.9 per cent.