Endowment Policy
What these policies are really , are complicated financial investment vehicles that can be cashed in on depending on the length of time held. This often means that the final surrender value of the policy also depends on the performance of the company managing the funds.
As with regular life insurance however regardless of the fund performance there will be a ‘sum assured’ - the guaranteed amount that will be paid out to the insured party. There is also further financial incentive to carry on maintaining the contracted policy in the form of bonuses.
These bonuses come in two forms :
Reversionary Bonuses : Often paid annually to prevent renewal with a competitor.
Terminal Bonus : The most lucrative part of the whole endowment policy which often contributes to more than half of the actual final payout when the policy reaches full maturity.
Although the concept sounds smashing in theory the sad reality is that the majority people who were intending to use these policies in the past to pay of an interest only mortgage have been sadly disappointed.
A real life case saw a return of just under £950 over that took 16 years to reach!
This was the equivalent of £59-60 annually.
The commissions paid out to the brokers are upfront which are recouped from your consistent payments.
