AdviceOnline
Traded Endowments
AdviceOnline Traded Endowments
Advice
on Traded Endowments from AdviceOnline
Although
most people come across a Life Assurance Endowment policy
as a means of repaying a mortgage, the policy is in fact a
savings plan, the proceeds of which are used, on it reaching
the end of its term, to repay the outstanding mortgage.
It
is not uncommon for endowments to be established purely as
a method of saving for the long term. Prior to March 1984
endowment savings plans were very popular as the government
gave tax relief on the premiums paid to the policy. Policies
started before this date still receive this Life Assurance
Premium Relief.
The
premiums paid into the policy have a dual purpose. Firstly
they cover the cost of the Life Assurance protection offered
within the policy. The person insured under the terms of the
policy is called the Life Assured. The balance premiums are
invested by the Life Assurance Company to increase the value
of the policy.
Secondly,
over the term of the policy the value of the savings element
grows and over time the value of the policy exceeds the total
of the premiums paid. This provides the growth on your money.
Most
Endowment policies are established for a set period of years
(the policy term) of more than 10 years as the taxation position
on policies cashed after their 10th anniversary allows any
investment gains to be taken tax free.
As
endowment policies are Life Assurance policies there has to
be a term for the policy established at outset. Although it
is possible for policies to have terms of less than 10 years
this is rare. Most Endowments sold in the UK have traditionally
had the same term as the owner’s original mortgage.
Where
the policy premiums are invested will differ in accordance
with the policy type. Most people choose an endowment that
invests the money in the With Profits fund of the Life Assurance
company.
There
is the alternative of a Unit Linked policy where your money
is invested in funds that reflect certain investment sectors.
These can include UK or Overseas shares (Equities), funds
that track a certain stock market index or perhaps a Managed
(Mixed) fund where the investment manager is responsible for
choosing the areas of investment for the fund. Under Unit
Linked plans the investment element is perhaps easier to see,
and is more susceptible to changes in the value of the investments.
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