Published by Joe Davine on
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How to get endowment life insurance

If you’re looking for to get life insurance and also save for the future at the same time, for instance to cover university expenses for your children or pay off a mortgage, then you’ll want to look into an endowment life insurance policy.

These policies combine life insurance cover with an investment-based savings program, paying out on a set date in the future or if you die before that date. Keep reading and we'll take you through how they work and where to get a policy.

What is endowment life insurance?

Endowment life insurance policies are investment savings accounts that you take out with a life insurance company. They combine term life insurance with a savings program: paying out the value of your investments on a certain date in the future, and also providing cover if you die before that point.

Endowment policies have a cash value as well as providing life insurance - unlike term life insurance or life assurance policies, which only have any value when a successful claim is made.

How do endowment life insurance policies work?

With endowment life insurance, your premium payments go towards two things: providing you with life insurance, while building up a savings portfolio to pay out at a specific date in the future. This is known as the policy’s ‘maturity’ date, and is commonly in the region of 20 years (although it is up to you when you want the policy to mature).

If you survive to the maturity date, then the value of your savings will be paid out to you to be spent on whatever you want. But if you unfortunately pass away before the policy matures, then your life insurance policy will pay out to your family.

What kind of endowment policies are there?

There are two main kinds of endowment life insurance policies, with the difference between them being how the investments within your policy are managed. Here’s a quick summary of each:

With-profits

If your money is invested on a ‘with-profits’ basis, then it means that your savings are pooled with those of other investors and the insurance company decides what to invest that money in (e.g. shares, property, or fixed-interest investments). After covering the insurer’s costs, any profits made through these investments are shared with you and the other people contributing to the pool.

Unit-linked

If you opt for a unit-linked endowment policy, this means that you choose how your money is invested. You select between a variety of investment funds, and are usually able to switch between funds without cashing out your policy (although some insurers may charge a fee for this). You then either make or lose money on those investments depending on how the funds you have chosen perform, so the value of your payout can both rise and fall.

Is the payout guaranteed?

This depends on the type of endowment policy you take out. If your savings are invested on a ‘with profits’ program, then there is a minimum amount that you’re guaranteed to receive, with bonuses added on top of this amount if your investments perform well. If your investments are unit-linked, then the value of your payout can go up or down depending on the performance of the funds you invest in.

What if I stop making payments?

If you stop making payments into your endowment life insurance policy, the value of your investments will stop being added to, and your life insurance protection will either stop or the level of cover you have will drop substantially.

With many insurers, stopping payments will mean that your endowment policy will still pay out when it matures, but the figure will be much lower because you’ve stopped adding into the policy and growing it over time.

Are my investments secure?

Any money you pay into an endowment policy is fully secure. The only time in which this may not be the case is in the unlikely event that the life insurance company closes down. If this were to happen, you will be covered by the Financial Services Commission Compensation Scheme for a maximum amount of £85,000.

Can I cash out my endowment life insurance policy early?

Yes, usually insurers will let you cash out an endowment life insurance policy before the maturity date. However, doing this will usually incur fees from your provider, which can take the form of paying only a percentage of the profits made through your investments into the plan, always check with your provider for the exact details about policy cancellations.

The amount you are paid when cancelling a policy is referred to as the ‘surrender value’. If you cancel your endowment policy, your life insurance will also expire.

Can I sell or trade my endowment policy?

Yes, you can sell or trade an endowment life insurance policy on the Traded Endowment Policies (TEP) market. There are many companies that buy endowments to add to their investment portfolios. Generally it is harder to sell a policy that is set up on a ‘with-profits’ basis, as specialists don’t tend to be interested in buying ‘unit-linked’ policies.

It’s likely that if you’ve had a policy for at least 7 years, you will get more return by selling the policy than cashing it in.

Should I get an endowment policy?

It’s up to you; if you’re looking to save money for the future, while also being covered by life insurance, then endowment policies are a great option. They’re also one of the only forms of life insurance that has a cash value, so you have the ability to cash out early or sell the policy before it reaches maturity.

With other life insurances, for example term life insurance, if you survive the term without making a claim then your cover will end without you receiving anything in return.

Can I get a quote now?

Yes you can. Simply click the link below and one of our trusted brokers will find you a great endowment life insurance policy in minutes.