work

Back To knowledge base

ENDOWMENT

Endowment.

An Endowment policy (provided by a life assurance company) is a typical savings plan that pays out a sum of money after a certain period of time. Endowments are often used when saving for a long term goal, typically around 10 years. 

They work by making a monthly or annual payment which is then invested either on a with-profit basis or a united-linked basis. The amount of money you recieve at the end of you endowment often depends the performance of the investment.

Process of Investing.

The money put into an Endowment policy is typically Invested into shares, property and fixed-term investments by the life insurance company you choose to invest with. The money invested is pooled with other investors' money and invested into the range of assets previously stated. The money is used to cover the costs of running the insurer's business and any money left (profits) is spread between you and the other investors.

It is helpful to note that you can choose how you want to invest your money, by choosing from a variation of different investment funds. This type of policy is when you invest on a unit-linked basis.

Access to Your Money.

It is reasonably difficult to Access Your Money before the end of the policy without receiving extra charges on the money available. If to comes to a point where you need acces to your money before the end your term you are only faced with two options, them being either to cash in on your policy or to sell your policy to a third property.

It is important that you talk to your provider if you are thinking of ending your policy early so that you are well aware of the costs and effects on payouts when ending your policy before the end of its term.

Charges & Fees.

There are various Charges & Fees which may be applied when choosing an endowment policy. Depending on the insurance company there may be an administration fee deducted from each of your payments. When investing on a with-profit basis, a selection of charges and fees are deducted from from the investment pool before bonuses are worked out. There will also be charges and fees deducted from each fund if you invest on a unit-linked basis.

It is helpful to note that ending your policy before the end of its term will result in extra charges and penalties as stated in the "Access to Your Money" section.

Tax.

You will still need to pay Tax on your Endowment policy however this will vary from person to person. If your policy is classed as a qualifying policy then any gain on the investment is technically not taxable. 

It is helpful to note that any gain on a non-qualifying policy may be subject to higher additional rates of income tax.