So, should you demand compensation?

Barclays

Bala Moddia, a community nurse, has already complained. He took a £53,000 mortgage and endowment with Barclays in 1988 to buy his first two-bedroom house, in Bicester.

Two years ago, Barclays Life told him that the policy was not performing well and raised the premium from £90 a month to £129. He recently had another letter about underperformance and discovered that the endowment policy does not mature until eight years after he retires from the NHS.

Barclays investigated and admitted it could not locate the Factfind, which is the adviser's formal record showing why a particular policy is recommended.

So the insurer was unable to explain why Mr Moddia was sold a low-start endowment or why it matured after his retirement date. Barclays Life offered him a refund of premiums plus interest minus tax, making a total payment of £18,538.97 in full and final settlement.

Mr Moddia then told Barclays he believed he was entitled to compensation. Barclays agreed that he had been inconvenienced and offered him a £150 ex-gratia pay ment. He feels this is still inadequate compensation.

Where does he go from here?

When it is not clear exactly what a homebuyer would have done if he had not taken out an endowment policy, the Ombudsman generally agrees that a refund of premiums plus interest is probably a suitable remedy. But if it is apparent that the complainant would have taken out a repayment mortgage instead, the Ombudsman can also take into account how much capital would have been repaid from a capital-and-repayment mortgage over the same period.

Standard Life

Standard Life has given this option to Mrs C of London, when admitting it mis-sold her an endowment. The insurer had been unable to establish if her risk rationale, or other types of mortgage, had been discussed when selling her the policy. She has the choice of returned premiums plus interest less the cost of life cover, or recalculating her debt as though she had taken out a repayment loan but deducting the current surrender value of the endowment policy. If she keeps the endowment, Standard Life will also give compensation of the difference between the surrender value and the debt reduction figure, £126.95.

Mrs C has a shortfall of £2,200 if she takes the figures provided on 20 April, or £600 at 21 July. She is adamant that the salesperson guaranteed that the endowment would repay the loan in full but Standard Life says it cannot find evidence of this. The endowment was sold by Halifax as a representative of Standard Life, so Standard Life handled the complaint, but Mrs C believes that Halifax should take some responsibility.

Where does she go from here?

The Ombudsman is likely to agree with allowing borrowers to choose one of these two options, assuming the deduction for life cover is appropriate because it is either required by the lender or needed by the complainant. The Ombudsman is unlikely to award the difference between the current mortgage balance and the current estimated maturity value of the endowment pol icy (which is the projected shortfall) unless there is sufficient evidence to prove that the company guaranteed at the outset that the policy would repay the mortgage at maturity. This has proved to be extremely rare in the cases presented to the Ombudsman so far.

Abbey Life

Annette McParland had an existing endowment policy with Abbey Life for £25,500 when she approached the Halifax for a mortgage of £52,000 to buy a new apartment. A Halifax representative suggested a personal equity plan mortgage but she explained that she would keep the property for only a couple of years before moving to the Republic of Ireland. Non-UK taxpayers cannot hold Peps. The salesperson then ad-vised her to buy an endowment, saying she could use the policy against a mortgage in the Republic.

She is now about to move and has discovered the drawback of earning in punts but paying insurance premiums in sterling. Lenders in Ireland have told her that fluctuating exchange rates make it difficult to fix the exact value of the policy and they will not accept it towards a mortgage. The policy is now useless to her: she has no dependants, but it has little cash-in value as it is only two years old. She has complained that she should not have been sold it.

Where does she go from here?

Annette needs to prove that it was reasonably foreseeable at the point of sale that she would move abroad in the future, and then show the effect that moving out of the UK has had on the policy.

Do you have a problem? What next?

You may have a case for compensation if you
were not warned that the policy carried a risk and
you have suffered loss. Several groups are
particularly likely to have cause for complaint:

People sold endowments that will not mature until after
they retire.

People who surrendered endowments, especially if
encouiraged to buy another from a rival.

Homeowners who did not need the life insurance in an
endowment.

Ask the insurer how much you will get if you surrender
the policy and ask your lender how much capital you
would have paid off with a repayment loan. This will
give an indication as to whether there's a loss,
although the Ombudsman would take other factors into
account.

How to complain

Go first to the insurer or independent adviser who sold
the policy. The Ombudsman will look at your case only
after you have been through the company's complaints
procedure. The FSA has now produced a leaflet on
how to complain, and this is available from 0800 917
3311.

It is reasonable, if an insurer says you should not have
been sold the product, to expect it to put you back into
the same position as if you had not had a policy. But
you do not have to accept its settlement; you can still
go to the Ombudsman. If you are offered a settlement
that involves cancelling the endowment, take care that
you do not leave yourself without life insurance that
you could not now afford.