Endowment products that are
available in the U.K. are actually insurance policies which are offered by
numerous companies. Many are life insurance policies that can be used to
protect the family of the policyholder in the event of an untimely death.
The policy is designed to pay a lump sum amount at the time of death or at
the time that the policy has expired. In this case, endowments can serve
to be a valuable saving program.
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The typical, traditional
endowment policy is created to provide life insurance coverage while, at
the same time, building a savings program. Generally, these policies have
target amounts that are designed to meet a particular goal. The lump sum
can then be used to pay off mortgages, provide for a regular retirement
income, or to finance school fees.
There are guaranteed target amounts to insure that the goal will be met. These amounts are agreed upon at the start of the contract so that the specified money will be paid out at the time of death or at the maturity date of the policy.
Another popular feature is the assigned transfer clause. This element allows for the policy and the lump sum amount to be transferred to a third party.
These policies have a lot
of upside to them. A set amount of money can be realized at a
predetermined time, they are transferable, and the profits can be spread
out to cover down times. The main disadvantage is that the premiums must
be paid on a regular basis.
There are both advantages and disadvantages to this type of policy. It is certainly a good idea to have a policy that will pay off your mortgage but, since the policy is tied into the stock market, it is a risky investment.
Endowment products can provide many
great services to the policyholder but they must be carefully chosen.