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Other forms of investment type Life Insurance

LIFE INSURANCE

Existing Endowment Mortgage: FSA Advice January 2000

The following is a summary of the pertinent points from a Fact Sheet issued by The Financial Services Authority for people who have been notified that their existing endowment is unlikely to repay their mortgage in full at the end of the term.

Options for you to consider if you have been notified by your insurance company that your endowment policy is unlikely to repay your mortgage in full. The company may suggest that you should raise the premiums of your endowment but the FSA suggests instead that you:

• Contact your lender and arrange to change part of your mortgage to a repayment loan. For example, your mortgage is £60,000 and the endowment company tells you the possible shortfall is £10,000. You should re-arrange your mortgage so that £50,000 continues on an interest only basis (repaid by the endowment policy) and £10,000 (the amount of the shortfall) is converted to a repayment loan or
• If you have a spare lump, make extra capital payments to your lender to reduce the amount you owe on the mortgage loan. But check first whether you will have to pay any penalties for paying back part or all of the loan early (redemption penalties). Check whether too when the capital repayment is credited to your account, so you know when you will benefit from lower payments.
• The FSA also suggests you consider starting an additional savings scheme such as an ISA to build up a further lump sum. Although this is better than paying more to an endowment policy, AAA Investment Guide feels the first two suggestions are much less risky as the amount accumulated in an ISA cannot be predicted.

In July 2001 it was reported by the Financial Services Authority that seven out of ten households had taken no action despite 10.5 million letters sent out, with approximately half predicting a short fall on maturity.

Other forms of investment type Life Insurance
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Last updated 10 September 2001.