endowment mortgage compensation

edited 30 November -1 at 1:00AM in Mortgages & Endowments
6 replies 1.8K views
disgruntled_3disgruntled_3 Forumite
1 Post
edited 30 November -1 at 1:00AM in Mortgages & Endowments
We have been offered compensation from our endowment co.which we feel is inadequate and wonder if anyone else has had the same exp. and how did they resolve the matter.We ahve been offered the amount we ahve paid in over 13 yrs +£1000.Should we accept this offer as if we continue to pay this premium for another 12yrs we will have a shortfall.
Also if we cancel the endowment the lifecover goes with it.
Any advise on this would be appreciated as we have to move on and accept this offer or not.

Replies

  • dunstonhdunstonh Forumite
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    How do you know you will have a shortfall in 12 years? You mean using the current projected growth rates, you may have a shortfall. If the plan iswith profits, the projection does not include any potential final/terminal bonus. If it is unit linked, the fund allocation may be abhigher or lower risk or a combination which offers greater or lower potential than the projected rates used.

    There is a formula used when working out any compensation. In simple terms its usually works out to be the difference between the endowment and the interest only mortgage against a repayment mortgage with life cover. You must remember that in the 80s and 90s an endowment mortgage more often than not, was the cheaper mortgage option due to MIRAS and interest rates. So for a chunk of that period, it was probable that you were paying less than a repayment mortgage.

    The compensation is there to work out the cost difference and not to put you in profit. It is also possible that your complaint isnt being accepted but you are receiving compensation just to get rid of you off the complaint stats. It is cheaper in many cases to offer an amount of compensation and get rid of you rather than string in it out in the complaints process. This has happened quite a lot and you can tell from how they have corrosponded with you how they view the complaint.

    If you do intend to surrender you could ask them to offer you the same life/critical illness/waiver of contribution cover that is on the endowment to be put onto a term assurance. However, if your health is fine, you will possibly find it cheaper to buy life cover from an IFA as life cover costs have gone down (although CI has gone up).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • MATHMATH Forumite
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    My sister was offered a very similar deal. She decided to keep the policy because of the life cover and was offered an additional £1,800 compensation.

    I was also miss-sold an endowment policy, I was 18 yrs old with no house or mortgage and no plans to get one. In fact I did not use the policy against a mortgage loan until 10 yrs later. My claim for compensation was turned down flat! Something I'm still looking into.
    Life's a beach! Take your shoes off and feel the sand between your toes.
  • dunstonhdunstonh Forumite
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    Pre sale endowments were quite popular for a while. Potentially, they were a good idea as you could save an amount before you actually got the house and therefore have a shorter term mortgage on the amount the endowment covered. You could save £1000s in interest payments. Plus life cover was arranged at an earlier age and therefore cheaper.

    However, the negative was that you wouldnt have a clue what you would eventually borrow and the amount of the endowment wouldnt match the mortgage and you may have too much or too little. If too much, you may not be able to afford it and need to surrender.

    If you didnt end up with a mortgage, you got the whole lump sum at the end.

    So, there are pros and cons againt pre-buying but i cant see there would be much ground to complain. Its not as if you could say that you didnt have a mortgage and didnt need it.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • paylesspayless Forumite
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    personally never really agreed with pre mortgage endowments,
    thought much better to save for a bigger deposit, than start an endowment early.

    Then the loan size, rate / MGIP was likely lower, if at all it happened.
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • MilarkyMilarky Forumite
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     If the plan is with profits, the projection does not include any potential final/terminal bonus.
    DD, you said something quite similar in [point '3' of] your reply here:

    http://forum.moneysavingexpert.com/cgi-bin/yabb/YaBB.cgi?board=Mortgages;action=display;num=1094224027

    I have noticed that since March my Standard Life with profits endowment has been valued/projected quite differently than previously. They are haven't actually cut the surrender value, but are cutting the so-called 'final bonus' addition to the 'basic value' element each month. The net effect is that, while the basic sum increases as before, the 'final bonus' decreases [by less], so that the policy SV is actually 'growing' more slowly - by about 2%pa. I have worked out that rate of growth [rather than the FSA prescribed figures used] 'projects' to the 'sum assured' plus attaching bonuses plus 'mortgage endowment promise' combined - in other words to the 'guaranteed' value at the maturity date....

    I had assumed that this change must be specific to Standard Life - and connected to their corporate shake up and volte face over mutual status. By 'valuing' all existing policies with any 'non-guaranteed' bonuses stripped out, it would allow for any DM proceeds to be allocated 'properly' [well, as I judge it, anyway!]

    But what you stated here [and in the other reply] hints at a general change affecting how all insurers must now 'value' and then 'project' existing policies. Has something like this happened or am I jumping to conclusions...?

    ???
    .....under construction....
  • dunstonhdunstonh Forumite
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    Standard Life, as a mutual, projected and illustrated their plans differently to the PLCs. They included what was referred to as a mutuality bonus.

    I wouldnt go as far to say it was corrupt but it certainly gave their illustrations and projections a bit of an edge over competitors.

    After their recent FSA audit (which all life companies are going to have to go through. Standard life were just the first so thats why it was high profile) the FSA said they had to have a far larger amount in the reserves than a PLC. This was unacceptable and probably unviable so Standard Life are going to float. In view of this, they cant project using a mutuality bonus when it becomes irrelevant in the near future.

    I know IFAs that wont touch Standard Life because they feel the company has been giving false illustrations (with regards to with profits plans).

    There has been no proof what endowment companies use as the base figure to project. You would assume that it is the current plan value and then 4,6 & 8%. However, its been seen that plans in their final years are projecting lower values than their current value. This suggests that this is not the case.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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