Do you really know how your claim partner operates?

Last week Endowment Justice, a company that represents people claiming compensation for endowment mis-selling, won £1,000 in damages after an MP accused it of 'robbing' consumers.

It is one of the more established operations out of hundreds of similar companies that have sprung up in the past few years. They operate on a 'no win, no fee' basis, tackling endowment claims on policyholders' behalf then taking a cut if the case is successful.

While there is nothing wrong with such companies, there is a worrying amount of misunderstanding about how they work.

First, they all charge a fee - typically 20 to 25 per cent of any compensation won, but increasingly as much as 40 to 50 per cent. It is crucial to remember that the money paid out in an endowment claim is a damages payment, not a bonus payment.

In other words, it will only put you back in the position you would have been in. So whatever you end up paying to a third company will again leave you with a shortfall.

The other misconception is that by using a third party your chances of success are always higher.

The Financial Ombudsman Service, which offers a free service to tackle claims once you have been through your insurer, says this is not the case. In fact, it often views those who have brought their own case more favourably. And recent figures from the Association of British Insurers show that 49 per cent of cases tackled directly by policyholders have been successful, against 46 per cent brought by claims companies.

There is no doubt that for some people these companies offer a solution to a major financial headache, especially in very complex cases. But before you hand over your money, consider whether you have exhausted all other avenues. And if you are going to use one, do some research; some charge just 10 per cent. If you need a hand, Which? has a very comprehensive website at www.which.co.uk.