| What
are Endowment policies? |
| Although
most people only come across a Life Assurance
endowment policy as a means of repaying a
mortgage debt, these policies are in fact
savings plans, the proceeds of which may
be used on maturity (i.e. the policy reaching
the end of its original term) for any purpose
not simply to repay an outstanding mortgage. |
 |
| Prior
to the introduction of PEPs and latterly
ISAs it was not uncommon for endowments to
be established purely as a method of saving
for the long term. Before March 1984 endowment
savings plans were very popular with savers
and investors, this was due to the tax relief
offered by the Government on the premiums
paid to the majority of Life Assurance policies.
Even now most policies that started before
this date continue to receive this relief,
which is known as Life Assurance Premium
Relief (LAPR). |
| No policies
created since the abolition of LAPR have
ever received this tax relief and the policyholder
is responsible for paying the full premium
to the Life Asssurance company with no assitance
from the Government. |
| Premiums
paid to a endowment policy have a dual purpose.
Firstly they provide for the cost of the
Life Assurance protection, offered by the
company, to the Life Assured (The person
or persons insured under the terms of the
policy are called the Life or Lives Assured).
Secondly an element of the premiums are invested
by the Life Assurance company to provide
for the return available if the policy is
maintained throughout the policy term . Any
profits generated from the investment of
the premiums are used to increase the value
of the policy. |
|
| Over the
term of the policy the investment value of
the policy should grow until it reaches a
point where, on maturity of the policy, a
substantial lump sum can be paid to the policyholder.
Under the majority of endowment policies
any amount paid on maturity are tax free
(different rules apply where the original
policy term was less than 10 years or possibly
where you have cashed the policy before its
maturity date). |
|
If
the policy was established with the intention
of repaying an interest only mortgage then
the proceeds of the policy recieved on
maturity would normally be used to repay
the original mortgage debt.
|
|
| Please
note, endowment policies do not provide any
guarantees that the maturity vale will be
sufficient to repay the mortgage debt. An
endowment policy can only guarantee to provide
a lump equal to your original mortgage if
your were to die during the term of the policy. |
|
| Therefore
before you decide to link the repayment of
your mortgage to the projected proceeds of
an endowment policy, you should consider
carefully that these policies do not provide
any firm guarantee, other than on death,
that the policy proceeds will be sufficient
to repay the mortgage debt. |
| For further
help and free advice please email
us. |
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