Help please about shortfall

flossy_splodge

I posted this elsewhere on the board but I think I should have posted here so:
I am trying to help some friends who have started a claim for endowment misselling. Their (insurance) policy is with Norwich Union. They have 7 years to go on a £30000 mortgage over 25 years and the projected shortfall is about £14000 depending on how you work it out. Now my question is: The B Soc has calculated a compensation payment of just over £3k but this seems to me to be based on an unfair calculation. How can they say that the difference between what the surrender value of the policy is now and what amount of capital would have been left if they had been on a repayment mortgage is what is due in compensation? This seems to me to totally ignore the fact that by the end of the mortgage period they will still be short on what is needed to clear the debt not to mention the selling point made at the time of the mortgage being taken out ie that there would be an accumulated lump sum over and beyond that needed to clear the mortgage. said sum was stated to be around £30k. If they accept the miserly aount offered, it appears they will then have to take out a repayment mortgage for about £11k over the next 7 years which with interest will amount to MUCH more than the premiuns they were expecting to pay to complete on the endowment. How can this be deemed to be fair compensation? Have I missed something? Amount offered is stated as in full settlement and without prejudice! What a surprise. Is this worth taking further? Mortgage taken out in June '88. Thanks in anticipation.x

EdInvestor

The redress amount is worked out on the basis that you

1.Surrender the endowment

2.Take out a new repayment mortgage for a lower amount reduced by the endowment S/V and the redress money

3.Add the endowment premiums to the mortgage payment so the monthly repayment is increased

This should mean there is no shortfall at the end of the term.

Tell them to get a quote for the surrender value and go off to see a mortgage broker who will help them work out the figures.

flossy_splodge

Thanks Edinvestor, they already have the SV and the repayment 'deal' they have been offered is at an interest rate of over 6% fixed for 54 months. A family member has just been through the same process and has been able to move the mortgage to a new provider offering 4.3% fixed for 4 years. So my question is: can my friends close down the endowment taking monies on offer but open a new repayment mortgage with another provider if they can get one at a better rate and if so what is the sequence of events they should follow? (Obviously not giving up/repaying current one until new one in place but what about the 'redress'?:o

EdInvestor

So my question is: can my friends close down the endowment taking monies on offer but open a new repayment mortgage with another provider if they can get one at a better rate.

Yes.

Sequence of events:

1.Accept redress money
2.Get S/V quote and seek replacement mortgage for new lower amount
3.Surrender endowment (If you need to replace the life cover, do it before surrendering the endowment.)
4.Change mortgages.


BTW if this is an old mortgage, it may be that the endowment is "assigned" to the lender, which means that the insurer won't pay out the surrender value unless the lender agrees.You will need to write to the lender and ask it to "unassign" the endowment.

Quiet_Life

'(If you need to replace the life cover, do it before surrendering the endowment.)'

Our endowment company had to offer us a life policy to cover our new repayment mortgage ( could take repayment with whatever company we liked) on the same terms and conditions at the time we originally took out the endowment.

To have taken a life policy on the basis of our age and health condition when we started a new repayment mortgage (2 years ago) would have been very, very expensive.
Check this out before you switch.