A responsible financial advisor who was selling an endowment mortgage policy should have made detailed enquiries about your current and prospective personal circumstances and should have considered your attitude to risk which would have entailed the adviser explaining in detail about how monies paid to an insurance company are invested on behalf of the policy holder. Failure to provide detailed advice can lead to a valid endowment mortgage claim. An adviser should have explained that investments can go down as well as up, dependent on the financial climate of the stock market throughout the life of the policy. If you bought your endowment mortgage policy before 1 January 1995 you should have been given product particulars including charges and cash-in values for the first five years and if you bought your endowment mortgage policy after 1 January 1995 you should have been given a Key Features document detailing fees and charges and their effect over the longer term.
There are many reasons why this type of financial arrangement may have been unsuitable which can give rise to an endowment mortgage claim for compensation. Some of the more common reasons why this method of repayment may not have been suitable which may give rise to an application for endowment mortgage misselling include :
Alternative methods for repaying including straight re-payments or a bank loan were not discussed or were not discussed in enough detail to ensure that an informed decision could be made.
No information was given about the mechanism for investments made by the life insurance company and that there was no explanation about the risks involved and that the policy may not return enough cash at maturity to pay off the loan.
The adviser should have explained that this method of repayment is a long-term commitment and should have explained that if an insurance policy is a cashed in early there can be substantial losses in regards to the payments made into the fund to date. This arises when the policy is cashed in because the life insurance company deducts all expenses associated with the policy including the broker’s commission for sale of the policy which can exceed the first year’s premiums.
Misleading information may have been given in order to persuade you to sign a contract and assurances may have been made that the policy was guaranteed to pay off the mortgage loan.
If payment of premiums was anticipated to continue after retirement the adviser should have ensured that the policyholder would have enough income to meet the payments.
A particularly despicable practice used by some financial advisers was to persuade a policy holder to cash in an existing policy and thereby suffer a financial loss to the fund before taking out a new policy for the full amount of a new loan. This ensured that the broker received an enhanced commission at the expense of the client and is an illicit practice known as ‘churning’.