Life Assurance- Not Just For Protection

Many other pages on this site deal with Life Insurance and Life Assurance protection based products. This page gives a brief outline of the other products that you may come across or hear about from a Financial Adviser or when looking for Life Assurance.

Endowment

Endowment policies were a common form of Life Assurance policy that people took out to repay their mortgage or accumulate savings. Since investment returns have dropped in the last few years, they are rarely used for this purpose.

There are a few Life Assurance companies that still offer endowment savings plans, but there are many other forms of more tax efficient savings available so their availability has declined.

How an Endowment policy works

Most endowment policies available are for a fixed term (minimum 10 years) with a low level of life cover. The life cover is 75% of the premiums payable over the term of the policy. On maturity the proceeds of the policy are usually free of any personal liability to taxes.

An alternative option is to have a higher level of life cover and a target sum to be paid on maturity. This could be an appropriate way of providing funds for a specific purpose at a later date (e.g. University fees). This form of endowment will usually be reviewed at fixed periods of time and if investment returns are low, the target sum may not be achieved or an additional premium will be required.

Your premium (less any administration charges) is invested into one of the funds available. At the end of the term the policy matures, and the amount paid out depends on how well the investments in the fund have done. There is no guarantee that you will make money through this form of investment.

Investment bond

This is a more common form of Investment policy than an endowment and many more Life Assurance companies offer them.

The investment bond is basically a place for a lump sum to be invested whilst you can have access to the money at any time. In the event of death, the usual payout is 101% of the value of the policy.

Most Investment Bonds are set up in a way that you can defer personal liability to tax on any profits made. You can often withdraw up to 5% of your original investment each year for 20 years without any liability to personal tax. At surrender or after 20 years you may be liable to pay income tax on the profits made.

Guaranteed Income Bonds

These investment bonds guarantee a certain level of income over a fixed period of time and at the end of the term of the policy you receive your initial investment back. If you surrender the bond before the maturity date you may not get back the amount you originally paid in.

Guaranteed Growth bonds

This is an alternative to a Guaranteed Income bond and if you hold the policy to the end of the term you are guaranteed a certain amount of your original investment back. Where investment returns have reached certain specified levels you will receive your money back together with additional investment returns.

 

 

This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.

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