An endowment policy
An endowment policy
An endowment policy is a savings policy which provides life assurance cover for a policyholder. The policy exists for an agreed term, the minimum term usually being 10 years.
A cash sum is paid out at the end of the policy term (on maturity), or in the event of the earlier death of a policyholder, either a predetermined sum (in the event of death) or an agreed capital sum on maturity. Bonuses are added to the policy, usually annually, and once added are guaranteed.
This type of policy has traditionally been used to repay an interest-only mortgage. On maturity the amount payable is the sum assured plus annual and terminal bonuses that have been allocated during the life of the policy.
A low cost endowment policy does not guarantee to repay a mortgage. However, most reputable life offices will check the performance of the policy ten years before maturity, five years before maturity and then annually to ensure that it is on target to provide the required sum. If a shortfall is likely, they will inform the policyholder of what action to take or options that are available.
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