Endowment Policies
Mortgages & life assurance policies
What is an endowment policy?
An endowment policy is an investment plan which is designed to enable you to repay your mortgage at the end of your mortgage term. Tied into your endowment policy is life assurance.
If your policy is successful then it may be possible to pay off your mortgage before the end of the term; if it is not successful, you might be faced with a shortfall, and you will have to make up the difference between what you owe and the amount of your endowment policy from somewhere else.
With-profits
A with-profits policy involves a life assurance company investing your money on your behalf. You will be entitled to an annual bonus which can be put towards paying off your mortgage early. With-profits policies rely on a steady growth and the amount of money that will be earned through the bonuses that you receive.
Unit-linked
With this type of premium, the money that you pay into the fund will go toward buying units which are invested into stocks and shares. The cost of units is published daily so you can monitor how much your premium is worth on a daily basis. There is a level of risk with this type of fund, however, and the amount that you invest can go down as well as up.
Unitised with profits
This type of premium combines with-profits with unit-linked funds. The money that you invest is used to buy units in a with-profits fund.
If you think that your endowment policy is not performing to the best of its ability, you may want to consider cashing it in. You should, however, get advice from an independent legal adviser before you go ahead.
The benefits of endowment policies are that you may be able to pay off your mortgage before the end of the mortgage term, life assurance is included and they are tax-efficient.
The disadvantages of endowment policies are that there is risk involved, you may end up with a shortfall and have to repay some of your mortgage another way, and you may also have to take out other investments in order to reach the sum you need to pay off.
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