UK Endowments
Other types of endowment policy
Three other types of endowment can also be found in use in
Britain:
Unitised with profit endowment
This is a hybrid unit-linked endowment, designed to smooth
out price fluctuations that occur with unit-linked policies.
The value of units is declared each year and that value is
then guaranteed. The guaranteed value that is declared is
at a discount to the actual value of the units. The guaranteed
value will not reach the real value until the term of the
endowment is up, so the chance of being able to pay of the
loan early is minimised. This type of endowment is becoming
increasingly common, especially due to the volatility that
has been displayed by the stock market over the last few years.
Low start endowment
This is essentially the same as a low-cost endowment, but
premiums begin at a lower level and gradually increase over
a number of years - usually between five and ten. The initial
premium can be significantly lower than the full premium,
but never lower than half (which is a common starting point).
Premiums may, for example, increase from 50% to 100% of the
final value by 20% per year for 5 years or by 10% per year
for ten years.
This is another product designed to make it easier to budget
over the first few years of home ownership, when money is
likely to be tighter for many people. As with most products
that work this way, you generally have to pay for it in the
long run. The overall level of premiums you pay will be higher
than with a low-cost endowment, and the cash-in value will
be lower for longer. You are likely to be seriously out of
pocket if you try to cash in your low-start endowment much
before maturity.
Non profit endowment
The guaranteed death benefit or sum assured equals the value
of the mortgage loan. This type of endowment also guarantees
repayment of the loan. There are no annual or final bonuses
and you generally have no chance of a cash surplus on maturity.
Essentially, there is no benefit other than life cover. This
is seen as an inefficient method of saving the money to pay
back and is therefore rarely used to repay a mortgage.
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