Is my Endowment Policy covered?

Posted on: 04 March 2009 by Gareth Hargreaves

50connect reader Annette asks independent financial advisor Peter McGahan for some essential advice for dealing with her endowment policy.

Endowments are complicated financial products that combine life insurance and investment growth in one package.

They were most commonly used as a way of repaying a mortgage and keenly snapped up by homebuyers in the 80s and 90s. However, of the 8.5m endowments in existence by 2004, 6.8m were not expected to clear the mortgage they were intended to pay off.

Annette asks:

I have had an endowment with Legal & General since April 1990 and it matures in April 2015.

What would happen if they went bust?  Am I covered for compensation? There is quite a shortfall anyway, would it be best to surrender and take the cash in case something happens with Legal & General?

 

Peter says:

They don’t seem to be fairing very well.

You have quite a big question here although you may think it is a small one. There are a few aspects to it:

  • Protection of capital if a company 'goes bust'
  • Should I surrender
  • Legal & General's performance

Firstly, as a policy of insurance, the plan is covered under the FSCS as follows: 100% of the first £2,000 plus 90% of the remainder of the claim will be paid to you.

Legal & General going bust?  I hardly think so. Other providers would rally round and take over its liabilities anyway.

The decision around encashing or not is too big to cover here. The market however is under pressure and will continue to be so for a while.

Remember however that every month to put your premium buys units in a fund. The unit price is very low now and that means you will buy lots more units. When the market responds your unit price will increase and you will benefit considerably.

Whilst I expect a downturn for the coming months I expect the market to respond early next year as views on the end of the recession unfold. Before doing anything regarding any investment be sure to speak to your independent financial adviser.

 

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