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With profits Endowment.
With profits endowment policies are normally enhanced with regular bonus
payments.
Bonuses are added to the sum assured and once added can be withdrawn at certain times, usually at death or maturity and possibly other times specified in the product terms.
Bonuses may be added annually (known as the reversionary bonus) and at the end of the term (a terminal bonus) depending on investment performance.
Low cost Endowment.
Low cost endowment policies were invented by insurance companies to reduce the cost of the with profits policy, and provide a means of paying back an ‘interest only mortgage.’
It is a combination of a with profits endowment policy and decreasing term assurance (to ensure the capital sum borrowed is repaid in the event of death).
Bonuses are added to the endowment sum assured with the intention that
there should be sufficient cover to repay ,say, a mortgage at the end of the period.
Low cost endowment policies are not guaranteed and maturity levels depend on investment performance.
Low start endowment.
Low start endowment policies were
Introduced to help young ‘first time house buyers’. Low start endowments
are another type of with profits policy where bonuses are added to the
endowment sum assured. The level of cover is the same as the low cost endowment, but premiums start at a lower level and then increase at a set percentage for five years. The eventual premium is higher than the level premium under a low cost endowment policy.
Unit linked endowment policies.
Premiums buy units in a fund of the investor’s choice. Units will be cancelled each month to buy life cover. There is investment flexibility as funds can be switched.
Units will be purchased at the offer price and sold at the bid price (usually lower) incurring a bid offer spread charge of around 5%. Set up costs will be taken off the fund value.
Flexi-endowments.
A policy is written say for a total term, say to the age of 65, with options to encash after 10 years without penalty. The policies are usually written in segments to allow some to be encashed and some to be continued. This may be suitable for school fees planning.
Friendly society plans.
Friendly society funds enjoy favourable tax treatment and are tax –free to the investor.
Level and bases of, and reliefs from taxation are subject to change.
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