Endowment, Life Insurance UK


It's a common misunderstanding that life assurance policies have only one purpose: to financially provide for dependants if the worst should happen. Of course this is exactly how the lion's share of policies work, however they can also be used as a method of saving.

You may already be familiar with endowment insurance, which offers both protection and savings. If you aren't they are fairly straightforward to understand. The idea is simple: you pay a monthly premium and when the policy matures you receive a capital lump-sum (you'll also have life insurance cove for the duration of the policy).

Anyone considering an endowment policy will first need to establish the term (or length) of the policy, and then decide whether they want it to be ‘with profits' or ‘unit linked'.

If you take out a ‘with profits' policy the bank or building society invests your monthly premiums as they see fit. Any profits made are then added to your final guaranteed payout or paid as regular bonuses. Returns can't be guaranteed as they depend on how the stock market and your investor's portfolio are both performing. To reduce risk; funds are ‘pooled' with other policy holders' capital.

Unit linked policies are more risky as there is no guaranteed payout (except in the event of death). Premiums are invested in a portfolio agreed on by you and your insurance provider. When the policy matures your payout will reflect how well the investment has performed. If the markets have performed well you'll be looking at a handsome payout. However, if they haven't; you could be left with nothing. If you chose a unit linked endowment policy you'll need to spend some time deciding where (and at what level of risk) you want to invest your funds.

Because endowment policies represent a method of saving expect to pay considerably higher monthly premiums than with a standard life insurance policy. If you pass away before the policy expires the insurance provider pays-out either the insured sum or the policy value (depending on which is bigger).

 

 

 

 

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