Case Study: Mr Jones has received notification from his endowment provider that the policy is likely to create a shortfall of £12,000 at the middle projection rate (6%). Mr Jones' outstanding interest only mortgage is £70,000 with 15 years remaining (monthly cost = £300). The endowment policy premium is £130 per month for the next 15 years. Total cost of mortgage = £430 per month.

What are Mr Jones' Options assuming no lumps sums are available at the moment?

What Mr Jones has to consider is whether he will have any lump sums at retirement or mortgage maturity to help cover the shortfall. These lump sums could arise from a Company or Private Pension Plan, or other investments he has been contributing to. If lump sums may be available, they can be taken into account. For the purposes of this case study, we will assume that any lumps sums he will receive have already been allocated to other uses.

Allocating Additional Savings to cover the Potential Shortfall

There are a range of savings plans/investment available including Individual Savings Account, Tax Exempt Savings Accounts, Building Society/Post Office accounts etc. In simple terms, to cover the shortfall (assuming zero investment growth) Mr Jones would have to set aside £12,000 divided by 180 months = £66 per month. This figure can obviously be reduced if Mr Jones wishes to assume he will receive at least some investment growth.

Gamble that the shortfall will not occur

Although there is no guarantee that the shortfall projections will materialise, we cannot predict future economics or performance and therefore there is no guarantee that they will not. This uncertainty is causing endowment investors much anxiety and many want to be sure their mortgage will definitely be paid off.