This page is about what you should do about repayments if you receive a shortfall letter about your endowment policy.

Remember, we cannot offer individual advice. Think about what you read in the light of your own individual circumstances. Some of these points may not be relevant to you.

Endowment shortfalls - some bad ideas

Several insurance companies were telling policyholders that they would have to pay substantially higher premiums if the policy was to cover the mortgage when it matured.

But the FSA has now banned insurers from giving advice in these letters. You should receive an FSA factsheet from them. If you haven't got one and you need it, phone the FSA - 0800 917 3311.

But if you are a higher rate taxpayer and you increase your premiums when the policy has fewer than 10 years to run, you may end up with an extra tax liability. Some insurance companies warn you of this, some don't. The Personal Investment Authority ombudsman says

It is a distinct possibility that people will be entitled to compensation if they have not been advised by the insurer of the rule. I think the insurer should give some warning about it. Otherwise the saver may do the wrong thing.

Endowment shortfalls - what now?

Points to ponder.

• You may not need to do anything. The projections are at 4%, 6% and 8%. Historically these are low rates. (On the other hand, inflation has fallen too, and the stock market has done badly recently.) You can get about 4% on deposit at time of writing, so perhaps endowments should be able to make more than this.
   
• The projection may take no account of the terminal bonus on a with profits policy, which is often substantial. (But unit linked policies don't attract a terminal bonus.)
   
• It is often a bad idea to cash your endowment policy in or sell it, because of the terminal bonus, which you get on a with profits policy if you keep it till it matures. More here.
   
• If you start a new endowment policy or top up the original, you could pay high charges and commission. Usually a bad idea.
   
• If you increase payments into the existing policy you could find you have a tax liability if the policy has less than ten years to go.
   
• You could take out an ISA instead, and make extra payments into that. If you choose a shares ISA, you will still have the risk of being exposed to the stock market.
   
• You could convert part of the loan to a repayment mortgage.
   
• Or you could use some of your savings to reduce the mortgage.
   
• Standard Life says it will guarantee to repay mortgages if its 1.6 million endowment policies grow at 6% a year at least. So if you are with Standard Life you have even less cause to worry.

One IFA quoted by the BBC says "Endowment Mortgages: Do Not Panic".

If you want advice on your individual circumstances, we can't advise you (which doesn't seem to stop people asking us!), but an IFA can. Try to talk to one who is paid through hourly fees, rather than by commission on the products they sell you.

What next?

Visit our outline guide to the complaints process.