If you receive such a letter, what should you do next?
The first and essential rule of any decision of this type is to take advice from a qualified person, but here are some possible strategies:
- Put More Into Your Policy - The insurer will probably be happiest if you simply increase the payment into your policy to make good the shortfall. On the plus side, this should also mean that your life assurance cover is maintained, but the risk of continued underperformance is essentially the same;
- Start Repaying the Mortgage - One of the easiest options is to start paying off your mortgage by paying amounts into the mortgage account or into a savings account that is "swept" into the mortgage. The key here is to check what the impact of doing this will be some mortgages are set up in such a way that you will be better off putting money aside until just before the end of the "mortgage year" and paying it into the mortgage as a lump sum, rather than paying amounts off during the year;
- Cash-in or Sell the Policy - With the severe penalties attaching to life policies for early surrender, it usually isn't sensible to surrender a policy that has been running for any length of time. Some policies can be "sold" - there are specialist brokers for these "second-hand endowments". This is not always possible, however, and don't forget that cashing in a policy means the life assurance cover is lost;
- Put Money Aside in a Deposit Account or ISA - Saving regularly means that you can review your position annually and top up (if necessary) the payments for the next year to make sure the shortfall is met. A pension fund may also be a good way of saving, using the tax free lump sum to clear the shortfall. This is especially attractive for people over the age of forty;
- Take Legal Action - If you have been mis-sold a financial product, you may be able to sue for compensation from the seller. But take advice quickly - the right to be compensated for negligent advice is for a limited period only.