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Endowment policies are life insurance policies that pay a lump sum on death. However, they are primarily designed as a savings scheme and the bulk of the premium buys units in the insurance company's collective funds.
Historically, many endowment policies were sold, usually to help pay off a mortgage where only interest was paid on the loan (interest only mortgage). Unfortunately, recent performance has been poor due to high initial charges and low stockmarket returns in the period 2000 to 2003. This means that there are many policies in existence that are no longer expected to be able to repay the mortgage.
How do I know whether my policy
will repay
my mortgage?
Endowment policy providers are now legally obliged to tell you how your policy is performing. This has resulted in a traffic light alert system:
| Red alert | the policy is highly unlikely to repay the intended amount at maturity. |
| Green alert | the policy is still likely to pay the target amount. |
| Amber alert | falls between the green and red alerts. |
This system is designed merely to let you know the status of your policy and, if necessary, warn you that you may need to take action to ensure that there will be sufficient capital to repay your mortgage. It is not possible to be certain of the maturity value of an endowment policy and it is prudent to seek independent advice sooner rather than later.
What should I do if my endowment
is unlikely to repay my mortgage?
There are several options available, including:
What should I do if I think I was
mis-sold my endowment?
The problems in the underperformance of with-profit endowments and endowment policies in general have led to claims by investors that they were unaware of the risks involved and that they were mis-sold their policy. If you feel that this could be true in your case then you may be entitled to compensation.
A guide on what you can do has been published on the FSA website.
© John Bramwell 2005-2008
BV Services is Authorised and Regulated by the Financial Services Authority
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