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www.InvestmentGuide.co.uk Other forms of investment type Life Insurance
LIFE INSURANCE
A commitment to save a fixed monthly amount, usually for 25
years in order to repay your mortgage. The payments to the
endowment policy are in addition to any interest
payments you make to the bank or building society. When you take out an
endowment mortgage, you don't make any capital repayments to the bank or
building society - the capital is intended to be repaid when the policy
matures.
Your life (or joint lives) is insured for a fixed sum to
which profits called reversionary bonuses are added every year. The
bonus rate can can rise and fall but once a bonus has been added it is
guaranteed. The fixed sum insured plus bonuses are paid (plus with some
companies a terminal bonus) if you die or at the end of the term,
usually 25 years.
Who can invest Anyone in good health.
How worthwhile Not recommended for new borrowers because of poor returns achieved by the policies in recent years. The Financial Services Authority has a fact sheet for people who have been notified that their existing endowment is unlikely to repay their mortgage in full at the end of the term. The most important part can be read here.
Minimum Not applicable. Depends on the size if the mortgage.
MaximumNot applicable. Depends on the size if the mortgage.
Suitable Regular savings.
Money back On death or when the term ends. There is likely to be a heavy penalty if you stop early.
Interest Variable. Based on bonus rate.
Interest paid At the end of the term or when you die. The money goes to pay off your mortgage.
Tax The life company pays tax on the income and capital gains it makes which reflects in your bonus rate.
Fees to pay The premiums may include a fixed policy fee (eg £2 a month) which make a £100 a month policy better value than a £25 a month one.
Passbook None. Insurance policy issued. Bonus statements normally issued yearly.
Children Unsuitable.
Risk A cut in terminal bonus can seriously erode the return from your policy and some companies have now abandoned them altogether. Some companies pay as much as two thirds of the proceeds as a terminal bonus. UK authorised life insurance companies are covered by a 90% compensation scheme less 'excessive' benefits.
How to invest Don't.
Where from Banks and building societies
Other forms of investment
type Life Insurance
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Last updated 22 January 2003