Are Mortgage Endowment Holders Still Being Sold Short by the Life Companies?

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Are you well endowed? - August 2001 saw the Financial Services Authority tell the life assurance companies that must inform endowment policy holders of the option of selling their endowments instead of surrendering them, but how many are making the effort to comply with this, and is the UK public being sold short yet again? Not if a new web site gets it's way.

You may be tempted to cash in your endowment policy. Never do this, or stop making payments, without calling our helpline, or speaking to a Financial Advisor.

Mortgage endowments are a bit of a hot potato at the moment, with warning letters being sent out to thousands of unfortunate endowment policy holders, giving them the bad news that their endowment policy, so enthusiastically sold to them all those years ago, is not so well endowed after all.

Just when a significant increase of cash would help to solve this dilemma, adding fuel to the fire is the apparent reticence of the life assurance companies to fulfil their legal obligations, and inform those looking to surrender their policies of the extra money they could get in return, by selling the endowment policies privately instead.

It’s a situation that a new web site, http://www.sellendowments.co.uk is looking to rectify, by making the whole endowment selling process painless, and instantly available to anyone.

The F.S.A (the UK government regulator set up to protect our interests by policing the financial services industry) make it compulsory for the life assurance offices to inform the public of this “endowment selling” option, so why are they apparently so lax about doing it?

Could the reason lie in this statement, made by the F.S.A in its consultation document CP106 – section 3.9, way back in August 2001?

“It is where policyholders approach the issuing life office direct with, perhaps, a direction to surrender, that they are at greatest risk of losing out through ignorance or lack of understanding of the alternatives. Historically, some life offices have been reluctant to accept responsibility for informing such policyholders about the alternatives to surrendering a policy. They have not, for example, considered it to be their responsibility to tell policyholders how to dispose of their policy and have been reluctant to get involved in the additional administrative effort in being a party to the sale of a policy.”

And again, on the recently revised F.S.A web site:

“If you surrender your policy, the life office pays you a surrender value for it. If you trade it in, you sell the policy to a third party (usually via a traded endowment company, sometimes called a market maker). The new owner takes over the policy and pays the premiums but the assurance remains on the life of the original policyholder. So when it matures or if the original policy holder dies, the new owner gets the money. Depending on how long the policy has been running, you may get more money trading it in rather than surrendering it.”

So wrapped up in adhering to correct financial speak, and complying to the letter of the F.S.A law, the life assurance companies go to great length to dissuade you from cashing in or surrendering the endowment policy.

As, quite rightly, they point out that “You may be tempted to cash in your endowment policy. Never do this, or stop making payments, without calling our helpline, or speaking to a Financial Advisor.”

One assumes that the financial adviser, who sold it to you in the first place, is now going to welcome you back with open arms, a red face, and admit that they got it wrong?

With financial advisers leaving the industry on a daily basis you may be a bit hard pushed to track him down.

Where in all the junk mail sent out by the endowment life assurance companies does it say that you can sell your endowment policy as a “going concern” with many years of hard earned premiums paid already, and get a better return than that offered by the original life office?

It doesn’t seem to mention that if you did just that, not only could you potentially get more money than by surrendering it, but the new owner could benefit from your premature death, and get the life assurance paid to him instead.

So the question that begs an answer is “if you approach your endowment policy company, to discuss the surrender value of your endowment policy, will they inform you, as they must do according to the F.S.A, of the option of selling the policy to a third party instead of surrendering it back to them?”

Is it perhaps the fact that you could get a better offer elsewhere that is influencing the way they respond to you?

Should you wish to find out what your endowment policy is worth if you sell it instead of surrendering it, try a visit to the web site http://www.sellendowments.co.uk

If in any doubt, follow the directive of the F.S.A and talk to an independent financial advisor before acting.

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Alan Reynolds

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