Endowment advice please
Discussion
Hi,
Bit of an epic this one!
My husband and I bought a house back in 1999 with an interest only mortgage and an endowment policy.
We moved last year and took out a repayment mortgage which included the remaining mortgage from the first house (same mortgage provider).
So, we still have the endowment but we don't need it to pay off the mortgage.
We are thinking that we'd like to use the money to pay for our children's university education or maybe a deposit for their first flat.
However, as it was originally intended to pay off a mortgage, are we legally obliged to use it for that purpose?
We have also recently received some slightly bewildering paperwork from the endowment policy providers saying that there might be a shortfall.
They want us and our lender to sign it to say we are happy with this and have received (or agreed to waive) financial advice.
As the endowment is no longer related to the original mortgage, we don't know whether it's any of their business.
We certainly don't want the aggro of getting our lender to sign paperwork for the benefit of the endowment provider! It very much feels like they are trying to cover their backs if the policy doesn't perform very well.
We have looked into getting financial advice and coming back with figures of £200 an hour when all we really want to know is:
Can we use the money for other stuff?
and
Do we need to involve our lender in the shortfall mess even though we now have a repayment mortgage?
If need be, of course we will seek professional advice but we don't even know if we need it!
Any advice would be gratefully received.
Bit of an epic this one!
My husband and I bought a house back in 1999 with an interest only mortgage and an endowment policy.
We moved last year and took out a repayment mortgage which included the remaining mortgage from the first house (same mortgage provider).
So, we still have the endowment but we don't need it to pay off the mortgage.
We are thinking that we'd like to use the money to pay for our children's university education or maybe a deposit for their first flat.
However, as it was originally intended to pay off a mortgage, are we legally obliged to use it for that purpose?
We have also recently received some slightly bewildering paperwork from the endowment policy providers saying that there might be a shortfall.
They want us and our lender to sign it to say we are happy with this and have received (or agreed to waive) financial advice.
As the endowment is no longer related to the original mortgage, we don't know whether it's any of their business.
We certainly don't want the aggro of getting our lender to sign paperwork for the benefit of the endowment provider! It very much feels like they are trying to cover their backs if the policy doesn't perform very well.
We have looked into getting financial advice and coming back with figures of £200 an hour when all we really want to know is:
Can we use the money for other stuff?
and
Do we need to involve our lender in the shortfall mess even though we now have a repayment mortgage?
If need be, of course we will seek professional advice but we don't even know if we need it!
Any advice would be gratefully received.
Just pay it to the end and they'll send you the money!
They have sent you a letter about a possible shortfall and are trying to get you to confirm that you have sought professional advice to ensure that when the policy matures, you can't come to them and say "we didn't know what your letters meant" "We thought we'd have enough to pay off our mortgage" etc etc
They have sent you a letter about a possible shortfall and are trying to get you to confirm that you have sought professional advice to ensure that when the policy matures, you can't come to them and say "we didn't know what your letters meant" "We thought we'd have enough to pay off our mortgage" etc etc
SG,
Many people, like you, cut the link between the endowment and their mortgage, making other plans to pay off their home loan with other savings, investments, or a tax-free lump sum from their pension. Others switched their mortgage to a repayment model. One of the considerations is that if you do encash it, you'll lose the life insurance which the policy currently gives you. Are you able to change the underlying funds?
You say you were told that there 'might' be a shortfall. 15 years or so ago, financial regulators told insurance companies to write "traffic light" warning letters to policyholders to explain the level of shortfall that might occur. A "red letter" meant there was a high risk of the policy paying out less on maturity than the target amount. And post 2004, consumers generally had 3 years from receiving such a letter.
In practice, these are usually the "red" re-projection letters that policy providers send to consumers whose policies are expected to pay out less on maturity than the target amount. "Red" letters include a warning that there is a high risk of a shortfall on maturity. Whether or not a letter may be classed as a "high risk" warning letter depends on the content of the letter and its overall messages.
The ombudsman decided that "amber" letters containing mixed messages (eg; where there is a "high risk" warning but the projections show a surplus at one or more of the assumed growth rates) do not amount to "high risk" warning letters. So, if you feel able or willing to make a complaint, although you are now possibly time barred, have you ever received a "red" warning letter?
Many people, like you, cut the link between the endowment and their mortgage, making other plans to pay off their home loan with other savings, investments, or a tax-free lump sum from their pension. Others switched their mortgage to a repayment model. One of the considerations is that if you do encash it, you'll lose the life insurance which the policy currently gives you. Are you able to change the underlying funds?
You say you were told that there 'might' be a shortfall. 15 years or so ago, financial regulators told insurance companies to write "traffic light" warning letters to policyholders to explain the level of shortfall that might occur. A "red letter" meant there was a high risk of the policy paying out less on maturity than the target amount. And post 2004, consumers generally had 3 years from receiving such a letter.
In practice, these are usually the "red" re-projection letters that policy providers send to consumers whose policies are expected to pay out less on maturity than the target amount. "Red" letters include a warning that there is a high risk of a shortfall on maturity. Whether or not a letter may be classed as a "high risk" warning letter depends on the content of the letter and its overall messages.
The ombudsman decided that "amber" letters containing mixed messages (eg; where there is a "high risk" warning but the projections show a surplus at one or more of the assumed growth rates) do not amount to "high risk" warning letters. So, if you feel able or willing to make a complaint, although you are now possibly time barred, have you ever received a "red" warning letter?
You don't make it clear if you're still paying into the endowment, can you confirm? You may be able to stop payments and make the endowment 'paid up', you then let it run to its maturity, so getting any final bonus etc. Something to consider, but take some advice and do some sums! No point in chucking more money into a bad investment.
Remember there may also be some life cover on the policy as well.
Remember there may also be some life cover on the policy as well.
You're right, we both have life insurance on that policy! We'd forgotten about that. Something that we will have to address when it matures...
Yes, we are still paying into it and it has 6 years to run - conveniently maturing when our eldest turns 18.
Maybe we could put some of into ISAs at that point.
The current plan is to keep paying it. The shortfall apparently is about 5k which we can live with.
I think we did get a "red" letter in the past, Ginge, but I don't think we would go down the complaints route anyway.
We have sorted the mortgage out so that's the main thing
Thank you so much, guys!
Yes, we are still paying into it and it has 6 years to run - conveniently maturing when our eldest turns 18.
Maybe we could put some of into ISAs at that point.
The current plan is to keep paying it. The shortfall apparently is about 5k which we can live with.
I think we did get a "red" letter in the past, Ginge, but I don't think we would go down the complaints route anyway.
We have sorted the mortgage out so that's the main thing
Thank you so much, guys!
SG,
My pleasure. Just a quick point, you might not need financial protection/cover in 6 years time but if you do, it will certainly be more expensive. Most importantly, if you still have dependent children (your *eldest* is now twelve?), is the cover that you currently have in place now, suitable and sufficient?
My pleasure. Just a quick point, you might not need financial protection/cover in 6 years time but if you do, it will certainly be more expensive. Most importantly, if you still have dependent children (your *eldest* is now twelve?), is the cover that you currently have in place now, suitable and sufficient?
You could be chucking more money into a bad investment. Ask the provider to give you a value if you make the policy 'paid up'. Then compare that with the projected final value. You may find it's not worth carrying on the monthly payments. Pay more of your mortgage each month instead.
I assume you have other life cover if you have a repayment mortgage?
I assume you have other life cover if you have a repayment mortgage?
Hi,
Yes, we took out plenty of additional life insurance - our jobs have comprehensive benefits packages which allowed us to top up our life insurance to cover the extra at very little cost
We absolutely understand that it's probably not a great savings plan and paying off the mortgage faster would probably leave us better off financially on paper but our problem is that we think we are going to need capital in 6 years time rather than more income or a shorter mortgage term.
We have two children, 12 and 9 - but only two school years apart. That's a lot of up-front wretched tuition fees
We will certainly ask what the paid up value is!
Cheers xx
Yes, we took out plenty of additional life insurance - our jobs have comprehensive benefits packages which allowed us to top up our life insurance to cover the extra at very little cost
We absolutely understand that it's probably not a great savings plan and paying off the mortgage faster would probably leave us better off financially on paper but our problem is that we think we are going to need capital in 6 years time rather than more income or a shorter mortgage term.
We have two children, 12 and 9 - but only two school years apart. That's a lot of up-front wretched tuition fees
We will certainly ask what the paid up value is!
Cheers xx
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