Endowments

An endowment is simply a regular premium life assurance policy taken out for a fixed term that pays out on maturity or on death if earlier. In order to be a qualifying policy, an endowment must provide a minimum life assurance benefit of 75% of the premiums payable over the term. This can be reduced for individuals over 55 years of age.
In exchange for following these rules, the policies receive beneficial tax treatment. Tax is payable on the underlying assets of the fund of up to 20%, but the proceeds of the policy will not suffer further income tax or Capital Gains Tax (CGT) unless the qualifying rules are broken.

Unit-linked endowments
These are regular premium savings policies. They come in two main varieties, one specifically for saving with minimum life cover called a Maximum Investment Plan (MIP) and the other specifically to cover a mortgage with greater life cover. In many cases, firms now offer with-profits as one of the funds available under these policies. Care should be taken when switching or redirecting funds to or from the with-profits funds as this may class as a significant change to the policy and result in the loss of qualifying status.

With-profits endowments
There are a number of variations to the basic with-profits endowment theme:

• Full endowments: typically used for savings.
• Low cost endowments: mainly used to fund an interest only mortgage, they are a combination of full endowment and decreasing term assurance.
• Low start low cost endowments: the same as above but premiums start at a lower level and then increase.
• Second-hand endowments or traded endowments: the selling price will normally be significantly greater than the surrender value of the policy.
• Friendly society tax exempt endowments: these take advantage of the special status of their exempt funds and grow completely free of tax.

For more information, please contact us.