Years ago, the endowment policy was regularly used as additional security by the lender. The lender would apply a legal device to ensure the proceeds of the endowment were made payable to them rather than to the borrower-typically the policy is assigned to the lender. This practice is no longer used.
The Endowment Policy is a contract on life insurance where a lump sum is paid to the borrower and/or their family after a specified time, whereby the contract has 'matured', or on the borrower's death. Usual policies mature at ten, fifteen or twenty years, but can be extended upon request up to a certain age limit. A typical projected maturity is valued at around 45,000 euro with a mortgage of 50,000 euro.
The policy can also pay out in the event of the borrower's critical illness, and if the borrower surrenders their policy they receive the surrender value, determined by the insurance company depending on how long the policy has gone on for and how much money has been paid in to it. However, this is usually not a good idea. While it's very difficult to project how these policies will perform, they are usually at maximum value if held to maturity. If you decide to cash in on your policy instead of waiting until it matures, an endowment policy company often gives you a better price than the life insurance company. The lender will tell you how much you need to increase your monthly payments by to pay off your mortgage.
They are mostly used to fund interest only mortgages. From the investor's point of view, an endowment policy is a huge gamble, more so than other investments in general, due to fluctuating financial markets.
There are six different sections into which an endowment could fall; profit endowment, unit linked, low cost, low start, flexi endowment and friendly society plans. Each of these provides different terms and benefits, with the profits endowment being the most popular, due to the bonus lump sum promised upon maturity.
1. Profit Endowment Policy- promises a bonus lump sum upon maturity of the policy.
2. A Unit Linked Policy- grants the investor authority to choose where the borrowed money is invested, possibly spreading the risk.
3. A Low Cost Policy- as the sole aim of paying off an investment such as a mortgage, which consequently brings the payments down.
4. A Low Start Policy- starts with low payments, and then over five years, payments increase at a set percentage. This policy is intended for first time buyers who may struggle to make full payments the first few years.
5. A Flexi Endowment Policy- gives the opportunity of paying off and cashing in on the endowment after a certain amount of time with no penalties, good for borrowers who want to pay off the mortgage before the maturity of the policy.
6. Friendly Society Policy- is usually tax free to the investor, which is appealing to borrowers due to the higher bonuses. promised when the policy matures.
The Endowment Policy is a contract on life insurance where a lump sum is paid to the borrower and/or their family after a specified time, whereby the contract has 'matured', or on the borrower's death. Usual policies mature at ten, fifteen or twenty years, but can be extended upon request up to a certain age limit. A typical projected maturity is valued at around 45,000 euro with a mortgage of 50,000 euro.
The policy can also pay out in the event of the borrower's critical illness, and if the borrower surrenders their policy they receive the surrender value, determined by the insurance company depending on how long the policy has gone on for and how much money has been paid in to it. However, this is usually not a good idea. While it's very difficult to project how these policies will perform, they are usually at maximum value if held to maturity. If you decide to cash in on your policy instead of waiting until it matures, an endowment policy company often gives you a better price than the life insurance company. The lender will tell you how much you need to increase your monthly payments by to pay off your mortgage.
They are mostly used to fund interest only mortgages. From the investor's point of view, an endowment policy is a huge gamble, more so than other investments in general, due to fluctuating financial markets.
There are six different sections into which an endowment could fall; profit endowment, unit linked, low cost, low start, flexi endowment and friendly society plans. Each of these provides different terms and benefits, with the profits endowment being the most popular, due to the bonus lump sum promised upon maturity.
1. Profit Endowment Policy- promises a bonus lump sum upon maturity of the policy.
2. A Unit Linked Policy- grants the investor authority to choose where the borrowed money is invested, possibly spreading the risk.
3. A Low Cost Policy- as the sole aim of paying off an investment such as a mortgage, which consequently brings the payments down.
4. A Low Start Policy- starts with low payments, and then over five years, payments increase at a set percentage. This policy is intended for first time buyers who may struggle to make full payments the first few years.
5. A Flexi Endowment Policy- gives the opportunity of paying off and cashing in on the endowment after a certain amount of time with no penalties, good for borrowers who want to pay off the mortgage before the maturity of the policy.
6. Friendly Society Policy- is usually tax free to the investor, which is appealing to borrowers due to the higher bonuses. promised when the policy matures.
Source...