What is an endowment policy?

An endowment policy is a regular savings or investment plan with life assurance combined in to the policy, which means that if the policy holder dies before the policy reaches maturity, the endowment policy life assurance company pays out the life assurance amount.

Very often linked to a mortgage, a mortgage endowment policy, once popular, are now often looked upon as a way that salesmen can make large commissions.

An endowment policy can be "unit linked" or "with profits".

A unit linked endowment policy has it's monthly premiums invested in to units, the value of which can go up or down depending on investment performance.

In a time of rising share prices and strong economic growth, the value of the policy increases also, however, when the markets decline so does the value of the endowment policy.

A traditional with-profits endowment policy, however, invests in a "with profits fund" and has a guarantee that the value of the policy cannot fall.

It also means that spectacular rises and falls in policy value, which can occur in individual high risk unit linked funds, do not occur in with profits endowment policies.

The monthly (could also be quarterly or annual) premiums are invested in a with-profits life fund in an attempt to achieve a steady return for the policyholder. Normally a fund declares an annual reversionary bonus, which cannot be taken away after it has been awarded. In this way, the guarantee of the minimum policy maturity value builds up year by year, consisting of the basic sum assured and the total of annual bonuses awarded.

A terminal bonus is normally added when the policy matures, and this is one of the elements that makes a with profits endowment policy an attractive investment for an endowment buyer.

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Selling endowments

Selling endowments to one of only six endowment policy traders that are  members of the Association of Policy Market Makers, can be achieved by using the "sell endowment" link at the top of the page, or by clicking here

The information on this web site is intended as "information only" and should not be taken as "advice".

If you are unsure about what to do, if anything, about your endowment policy, you should consider taking advice from an independent financial adviser who is regulated by the Financial Services Authority