Endowment policy types

Policies are catagorised in to two major groups traditional with-profits or unit-linked.

unit-linked

Unit-linked endowments are investments where the premium is invested in units of a unitised insurance fund. Units are encashed to cover the cost of the life assurance. Policyholders can often choose which funds their premiums are invested in and in what proportion. Unit prices are published on a regular basis and the encashment value of the policy is the current value of the units.

We know of no one currently trading these type of policies on the second hand endowment market.

To tell if your policy is united linked by the policy number please click here

traditional with-profits

There is an amount guaranteed to be paid out called the sum assured and this can be increased on the basis of investment performance through the addition of periodic (for example annual) bonuses. Regular bonuses (sometimes referred to as reversionary bonuses) are guaranteed at maturity and a further non-guaranteed bonus may be paid at the end known as a terminal bonus.

• With-profit endowments

There is an amount guaranteed to be paid out called the sum assured and this can be increased on the basis of investment performance through the addition of periodic (for example annual) bonuses. Regular bonuses (sometimes referred to as reversionary bonuses) are guaranteed at maturity and a further non-guaranteed bonus may be paid at the end known as a terminal bonus. During adverse investment conditions, the encashment value or surrender value may be reduced by a 'Market Value Reduction' or MVR(It is sometime referred to as a market value adjustment but this is a term in decline through pressure from the Financial Services Authority to use clearer terms). The idea of such a measure is to protect the investors who remain in the fund from others withdrawing funds with notional values that are, or risk being, in excess of the value of underlying assets at a time when stock markets are low. If an MVA applies an early surrender would be reduced according to the policies adopted by the funds managers at the time.

• Low-cost endowments

A low cost endowment is a combination of: an endowment where an estimated future growth rate will meet a target amount and a decreasing life insurance element to ensure that the target amount will be paid out as a minimum if death occurs (or a critical illness is diagnosed if included). The main purpose of a low cost endowment has been for endowment mortgages to pay off interest only mortgage at maturity or earlier death in favour of full endowment with the required premium would be much higher.

• Whole-of-life policies

Whole Life Insurance, or Whole of Life Assurance, is a life insurance policy that remains in force for the insured's whole life and requires premiums to be paid every year into the policy.

• Unit-linked policies

Unitised insurance funds or unit-linked insurance funds are a form of collective investment offered through life assurance policies

• Non-profit endowments

This type of endowment guarantees repayment of the loan. There are no annual or final bonuses and you generally have no chance of a cash surplus on maturity. Essentially, there is no benefit other than life cover which is equal to the value of the mortgage you have taken out.

Can any type of endowment policy be sold?

• With-profit endowments
• Low-cost endowments
• Whole-of-life policies
• Unit-linked policies
• Non-profit endowments

Other criteria which determine the suitability of a policy, include the life company, length of time that a policy has been in force and the surrender value.