Investment policy combined with life cover
An endowment policy is a long term investment plan with life cover built in. Policy terms typically range
from 10 to 25 years.
You pay a regular fixed monthly premium where a small portion of which covers the life cover with
the bulk being invested in one of the issuing life assurance investment funds. These can either be
unit linked or
with profits or, if available, a
combination of the two.
To benefit fully from one of these policies it is important you pay the premiums for the full endowment policy
term. This is
because it is not unusual for issuing life assurance companies to take charges from the first one to two years premiums
for setting up the policies. The result of this front end charging structure is very little investment is made within this period.
So if you decide to surrender the policy before the end of the term there is a very real chance
you may not get back what you put in. As the policy nears maturity the cash value of the policy can
exceed the sum assured.
The premium is based on the age, lifestyle and health of the insured as the policy has to be underwritten for the
life cover portion. The policies, generally speaking, can be on a single life or joint life basis. The greater
of the sum assured or cash value
is paid out on the death of the life assured, first death in the case of a joint life policy.
Endowment policies can be used as a 10 year savings plan or as the investment vehicle backing an
interest only mortgage, sometimes referred to as an endowment mortgage.