wealthfactsheet-life_insurance-endowment

2. Endowment Policy
An endowment policy is a life insurance contract designed to pay a lump sum after a specified term (on its 'maturity') or on death which ever happens earlier. Typical maturities are ten, fifteen, twenty, twenty-five years or up to a certain age limit.

Policies are typically traditional with-profits, which means they participate in the profits of the insurance company.

Endowments can be cashed in early (or 'surrendered') and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid in to it.

Endowment insurance is for people who are from all walks of life. However this type of life insurance is mostly suitable for the following types of people:

1. People who wants to start a typical term savings program.
2. For those who wants to provide 'Retirement Funding'
3. For those who wants to provide 'Children Education Funding' .

Types of Endowment Insurance:
1. Participating
In a participating policy (also known as a with-profits policy in the Commonwealth), the insurance company shares the excess profits or bonuses with the policyholder. The greater the success of the company's performance, the greater will be the bonuses.

2. Non-Participating
All values related to the policy (death benefits, cash surrender values, premiums) are usually determined at policy issue, for the life of the contract, and usually cannot be altered after issue.

3. Unit-Linked
This type of endowment policies will also have a maturity date, except that instead of participating in the insurance company's profits, they are mutual fund or unit trust based. Their returns are base on the performance of the selected funds and based on the underlying assets of the funds allocated.

The risk and return is all borned by the policyholders.

4. Traded Endowment Policy
Traded endowment policies (TEPs) or second hand endowment policies (SHEPs) are traditional with-profits endowments that have been sold to a new owner part way through their term. The TEP market enables buyers (investors) to buy unwanted endowment policies for more than the surrender value offered by the insurance company. Investors will pay more than the surrender value because the policy has greater value if it is kept in force than if it is terminated early.

When a policy is sold, all beneficial rights on the policy are transferred to the new owner. The new owner takes on responsibility for future premium payments and collects the maturity value when the policy matures or the death benefit when the original life assured dies. Policyholders who sell their policies, no longer benefit from the life cover and should consider whether to take out alternative cover.

The TEP market deals exclusively with Traditional With Profits policies. The easiest way of determining whether an endowment policy is in this category is to check to see whether an it mentions units, indicating it is a Unitised With Profits or Unit Linked policy, if bonuses are in sterling and there is no mention of units then it is probably a traditional With Profits. The other types of policies - “Unit Linked” and “Unitised With Profits” have a performance factor which is dependent directly on current investment market conditions. These are not tradable as the guarantees on the policy are much lower and there is no gap between the surrender value and the market value.