Are you entitled to endowment compensation?

If you are facing a projected shortfall in your endowment policy, you might be entitled to compensation.

It is estimated that in the 1980s and early 1990s as many as three endowment mortgages in five were mis-sold, but even people facing a shortfall might not be automatically entitled to complain.

Over the last few years banks and building societies have been sending out letters to warn people if their endowment policy was not likely to rise in value enough to pay off their loan when it matures (reprojection letters). These letters are coded by colour, green for endowments that are likely to cover the loan, amber if this is uncertain, and red if it is likely you will be left with a shortfall.

If you are facing a shortfall you might be able to complain and win compensation from your loan provider.

You have grounds to complain if:

At the point of sale your adviser did not:

Tell you how your money would be invested and explain the risks involved

Explain that endowment policies are long–term commitments which often give poor returns if you cash them in early

Make sure you were comfortable with the risks involved with your money being linked to investment performance, including the stockmarket

Check there was a reasonable expectation you would be able to keep up payments until the end of the term

Explain the fees and charges and how they would affect the return on your savings

You might also be able to complain if:

Your endowment policy finishes after you retire and your adviser did not check that you were likely to be able to carry on paying the premiums

You were advised to cancel one endowment policy and take out another

Your endowment policy runs on after your mortgage loan is due to finish

You were given a guarantee the endowment policy would pay off the mortgage loan.

But there is only a limited window of time in which you can complain.

Typically, you only have three years from the time when you first became aware or should reasonably have become aware you had good reason to complain.

Companies can reject complaints as being out of time – known as time–barring – if they are received outside these limits.

But since June 1st 2004, companies can normally only time–bar your complaint if:

You complain more than three years after receiving a red reprojection letter (or a similar letter warning you there is a high risk your endowment policy will not reach the target amount at maturity) or

You also receive at least six months' advance notice of the expiry date for complaining.

If you make a successful complaint you could be due compensation.

This is normally worked out by calculating where you are now with your endowment mortgage and comparing it with where you would be if you had a repayment mortgage and making up the difference.

However, once you have received compensation, you cannot then complain again later on if the position becomes worse and you are still left with a shortfall.

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