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A fixed term (normally) regular premium life assurance policy giving Life assurance cover with a savings element. Endowments were mis-sold because they were unsuitable for paying back a mortgage. If you think you were mis-sold an endowment mortgage policy you should make a complaint.
With-profit endowments
A with-profit endowment policy is a contract written by a life assurance company to pay a fixed sum (called the basic sum assured) plus accumulated profits (that are declared annually), to an assured person on a fixed date in the future (or to his/her estate if the person dies prematurely), provided that the premiums have been paid as required by the contract.
Unit-linked endowment policies
Unit-linked endowment policies were specifically designed for use with mortgage repayment and are being offered by life offices more and more. They differ quite substantially from with-profit endowments in the way they work:
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.
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.
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.
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