Endowment policies have received bad press in recent years, due to many people’s policies not maturing at the value they may have been expecting. If you have an endowment policy but are unsure about how much it is actually worth, you may want to read on.
What is an Endowment Policy?
Endowment policies are usually used to pay off interest-only mortgages. There are two parts to the policy; the investment, and life cover. The policy lasts for a set amount of time.
If the policy dies during this time, the mortgage is automatically paid off. If the holder is still alive at the end of the ‘life’ of the policy, it should be worth an amount which is enough to pay off the mortgage; but this is not guaranteed, it depends on how the markets perform.
In recent years, some policyholders have found that their endowment is unlikely to reach the valuation that was predicted when they took out the policy. This leaves them unable to finish paying off the mortgage and can lead them to have to find other ways to pay off the mortgage. Consequentially Endowment Policies have not been as popular in recent years, with many lenders no longer offering them.
Pros
There is still a chance that your endowment will be worth enough at maturity to pay off your mortgage and some.
Cons
If the policy doesn’t perform as well as expected, it might not pay off the mortgage.
An Endowment policy will only repay the assured sum if you die, you may have cause to buy extra life cover to provide for other debts.
When the policy expires, so does your life insurance.
How do I know if my Endowment will pay off my mortgage?
Speak to your endowment provider. If it seems likely that your policy is unlikely to be worth enough to pay off your mortgage at maturity you should speak to an Independent Financial Advisor (IFA). You can find your local IFA at Yell.
For more information, you can contact the Financial Services Authority, who is in charge of dealing with complaints about endowment policies. It is also responsible for securing compensation for anyone who thinks they may have been wrongly sold an endowment mortgage.
There are private endowment buyers who are willing to purchase with-profit endowment policies of a certain type. This can recover some of the value of your endowment policy. Patient investors will buy up several small endowment policies and wait for them to mature, something you may be unable to do.