About UK Endowment Policies

Endowment policies were developed in the UK in the 18th century as a way of providing a form of life assurance for traders and merchants. These early endowments were policies that paid the holders bonuses gathered from excess funds on top of the original sum assured.

Nowadays, with-profits UK endowments are policies that consist of a life assurance contract between an insurance company and a policy holder for a fixed term. The most common reason in the UK for taking out endowment policies is so that the capital sum on an interest-only mortgage can be repaid. Another reason for taking out endowments, is that policies simply provide a tax-free lump sum on maturity.

UK endowment policies work by requiring the holder to pay regular premiums to the insurer. In return, they get both life insurance cover and a tax-free lump sum when the policy matures.

With-profits endowments – policies include:

• The Sum Assured – Guaranteed on maturity – This is the minimum guaranteed sum, which the insurance company undertakes to pay out on an endowment policy's maturity date or on death, if earlier.

• Reversionary or Annual Bonuses – Guaranteed on maturity – These are usually added each year. Once a bonus payment has been declared, it too becomes guaranteed by the insurer. Although these bonuses accrue each year, they are actually only paid when a UK endowment policy matures.

• Terminal Bonus – This is also paid at the maturity of a policy after an early death. A Terminal Bonus represents the extra value earned over the life of a UK endowment policy but which has been held in reserve until the maturity date when this surplus return can be accurately calculated.

Find out how much your policy could be worth

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