Endowment assurance?

MoneySpendingExpert888

Hi guys,

One of my parents received an update letter on their 'endowment policy' recently and asked me to look through it for them, English isn't their first language hence why I help with the bulk of these matters. Parents are now recently divorced and this policy was taken out jointly over 20 years ago.

From what i understand an endowment is basically a sort of savings account? but when i asked the agent on the phone she explained that the policy was taken out with a mortgage? so that then makes me think that it's some type of life insurance? (you can see where i am getting confused here)

One way i could think that someone would take this policy out is if they were running it alongside an interest-only mortgage and that once the endowment has been fully paid then the bulk of those funds are used to pay off the rest of the mortgage.

The policy itself is apparently at a high risk of shortfall (hence the letter), which i don't really understood how that has happened because when i asked the agent on the phone what it was supposed to pay out when the plan matures she said £100,000 but at the moment it looks like it will be short £40,000 with only 4 years left till it matures. So even if they kept this policy going until 2019 then they will only cash out about £65,000 when the initial target amount was £100,000.

My only concern is with all the widespread miss-selling of policies could this be a similar case? because i know that my parents in those days trusted the bank managers with the majority of their decisions due to their lack of the English language, and I know for a fact that they wouldn't have requested for this particular policy unless it was put forward to them.

Any advice would be much appreciated. Thanks

stator

You have the basics right, it's an investment fund meant to pay off the mortgage when it matures. A lot of them will have shortfalls when they mature so your parents do need to look at other options. If they have many years working ahead of them they can remortgage on a repayment basis to cover the shortfall. A lot of them were miss-sold but you may have trouble proving it. Your action would be against the people who provided advice to the borrowers. Unfortunately the advice was probably given verbally and the paperwork will probably say the investment might not cover the mortgage. So you will have to dig out the paperwork and see if they made any recommendations that give you grounds for complaint.

sandsy

It would have served two purposes:
- life assurance if one of your parents had died (to pay off the mortgage)
- a savings contract.


Typically, the savings element targeted the amount of the mortgage but at the time the target was set, investment returns were much higher. As they've dropped substantially, most endowments will pay out a lower amount and most contracts will make clear that the target amount was not guaranteed.


This is unlikely to be the first letter - they're sent annually, under the agreement of an industry code. Our endowment also matures in 4 years, after being in force for 20 years, and I've been getting such shortfall letters since the year 2000. The letters were generally accompanied by information warning people to make alternative arrangements for repaying their mortgages while they still had a good few years left.


Claiming a mis-sale now would be pretty difficult.

Savingdad

I. Took out a 25 year endowment plan that was supposed to be used as security as a morgage deposit apparently, I took it out when in was 18 but I never used it for that reason so have just kept paying it monthly.
They have warned me for years it's not performing as well as promised but since I don't need it to pay off a morgage and its still on track to pay out a decent lump sum I have kept it going.
If your parents need it to pay off their interest only morgage then they will have to look at another way of covering the shortfall when the term us up.