Endowment trading may have legal snags

Solicitors with clients who invest in the traded endowment policies market have been warned to advise clients to guard against potential pitfalls when buying policies.

Michael Lopian, of Manchester firm Lopian Wagner which acts for leading market maker Policy Portfolio in the area, says the rapid increase in investment in the field is revealing a growing volume of legal problems which threaten purchasers' investments.

The market, in which the policyholder sells on with-profits life assurance policies before maturity to an investor, has become a lucrative alternative to the surrender of policies to life offices, says Lopian.

The market in traded policies has grown substantially since the 1980s and now exceeds u120 million a year.

But the market's appeal as offering safe, high return investments is being undermined by cases where buyers fail to secure full benefits.

"We deal with 300 assignment procedures each month and find that up to 20 per cent can present problems," says Lopian.

Problems range from outstanding charges from building societies or bankruptcy proceedings, which can threaten the purchaser's investment. So too can misspelt names, or failure of the seller to provide proof of age when taking out the policy, which can lead to dispute with life offices at maturity.

Confusion over who is liable for payment of premiums around the time of sale can also lead to the inadvertent lapsing of policies, which sell on the market for between u5,000 and u30,000. Often, the problems only emerge several years later when a policy becomes due.

Lopian says the problems are compounded by some auctioneers and market makers in the field who do not conduct checks on policies ahead of sales.

Although Lopian Wagner specialises in volume checking of policies, Lopian says any law firm ought to be able to handle the enquiries, which should be made in handling any purchase of a policy. He estimates a one-off check should cost between u100 to u150 – a small price to pay to secure a five figure investment.