These complex financial products combine investment growth and life insurance in one package. These products were popular among homebuyers in the eighties, nineties and nineties as a way to repay a mortgage.
Many people purchased them because they were able to get large commissions from home loan companies and middlemen like estate agents. These charges are often referred to as ‘front-loaded’. This means that most of the cost is paid upfront and you won’t receive any refunds for premiums over time.
These policies can be extended to grow beyond what you need to repay your mortgage. This gives you the opportunity to spend more on whatever you want. This has not been the case in practice. In 2004, 6.8 million of the 8.5million endowments were not expected to repay the mortgage they originally intended to pay.
An endowment mortgage allows you to borrow capital and not repay it over the term. Alternately, an endowment policy can grow to generate a lump sum large enough to repay the loan fully at the end the agreed period of 25 years.
Monthly payments include interest on the mortgage loan, and premium for the endowment. You also have to pay life insurance that will repay your loan if you are unable to work. There is no guarantee that your endowment will be sufficient to pay off your mortgage.
It is crucial to review your policy before making the decision to stop an endowment or surrender it.
You may make less if you redeem your loan early than if you had it for the full term. This could be the only way to get the money you need.
Continue to invest in a poor performing investment can be a waste of hard-earned cash.
Policyholders have the option to sell it to another party, as well as giving it back to the company it was purchased from.
You may also get more for your policy if you sell it back to the original issuer.
When it comes to endowing your company’s funds, different companies may have different requirements.
They would usually require that it be with-profits, or a whole-life with-profits policy, and have been in operation for a minimum of five years (the exact number depends on the company).
Others will require a surrender amount of at least PS1,500. They will not accept your policy if it does not meet these criteria. The policy issuer would then be your only option.
The Association of Policy Market Makers is an industry association for companies that specialize in endowment sales and buying. A financial advisor can also help you compare offers and get the best deal for your policy.
Although there will be an additional charge for the work, it can save you time and money while also helping you get the best price.
Your endowment policy should not be forgotten. You should not cancel your policy suddenly, just like with an investment.
You may lose the life insurance coverage you were offered if you stop paying your policy payments. If you become incapacitated or die, this is something to consider for your dependents.
If you don’t sell, the endowment will pay approximately half the amount. This is known as the terminal bonus, and it is not guaranteed. You will likely lose the terminal bonus if you stop paying in. Instead, you will only get the annual bonuses that are added to your policy.