Endowment life insurance

Looking for life insurance? Find out what life insurance with endowment savings is, how it works and who can benefit from it.

Posted

Fact checked
Promoted

Compare leading life insurance providers

Active Quote logo
  • Compare the whole market
  • Cheaper than buying direct
  • Optional critical illness cover
Start comparison

Endowment life insurance provides a more flexible approach to life cover, where your policy acts both as long-term life insurance and as an investment vehicle.

You can use an endowment life insurance policy to save up for major expenses, while still maintaining the security of a payment to your loved ones in the event of your death.

What is an endowment life insurance policy?

An endowment policy is a long term investment that includes life insurance cover.

Payment works in a similar way to regular life insurance in that you pay the provider a set amount monthly or annually. When the policy matures, usually after between 10 and 25 years, you get a cash lump sum. Some policies even include critical illness cover.

However, an endowment life insurance policy also has an investment element, so can act as a way to earn extra money from your savings (though, like with all investments, there is an element of risk involved too).

How does an endowment life insurance policy work?

An endowment policy serves a dual purpose. In one way, it works like a regular life insurance policy, so, if you die before the end of the term, your beneficiaries will receive a payout.

The difference between a regular life insurance policy and an endowment policy is that, unless the policyholder dies before the end of the policy term, the payout is handed out when the policy matures, usually up to 25 years from when it was first taken out, even if the policyholder is still alive.

Another element unique to endowment insurance is that your monthly or annually payments are only partly used to purchase life assurance. The remaining funds are then invested into the stock market, and the lump sum payout amount you get at the end of your insurance term depends on how well your investments perform.

Should I get a life insurance endowment plan?

Some scenarios where you might consider taking out an endowment life insurance policy are:

  • You want to save up for a big payout on the policy’s maturity, to use as a retirement fund, to reinvest elsewhere or for a particular long term goal (like a holiday home abroad, for example).
  • You want to invest, but keep your risks low and get a guaranteed payout on a set date (as long as you keep your premiums up to date).
  • You want to combine your life insurance with an investment vehicle into one.
  • You understand and accept the risks of investing, and that the market can go both up and down.

What is life insurance with endowment savings?

Life insurance with endowment savings means a policy that combines life cover and investment, but focuses more on investments.

You put a set amount into the policy every month or year and, at the end of the policy term, you get a lump sum payout. However, unlike a regular savings account, your funds are invested in the stock market, which means they can grow more than with just the interest offered by a standard bank account. On the flip side of that, they can also reduce if the market crashes.

How to get endowment life insurance

If you’re looking to get an endowment policy, you should first decide what type of policy you would like (you can learn about the different options below).

Once you’ve made a decision, you should shop around the market and compare policies to find the best option for your needs. You can also seek the advice of an independent financial advisor.

What are your options if you have an endowment policy?

An endowment policy offers several options for payout:

  • Wait for it to mature. You can keep paying in to your policy until it matures, then get a lump sum payment, even if you’re still alive.
  • Stop making payments. Some insurers will allow you to stop paying towards your endowment policy, but still keep it until it matures. This means that both the lump sum you get when it matures and the payout your beneficiaries will get if you die could decrease over time.
  • Surrender your endowment. You can cancel your policy before it matures and get a payout from your insurer. The amount you get would be much lower than if you wait for the policy to mature.
  • Sell your endowment. Selling your endowment to a private investor or company can get you a bigger payout than your insurer would give you if you surrender it.

What types of endowment policy are there?

There are four main types of endowment policies:

  • Non profit endowment policies. This type of policy pays a set amount when it matures, like the full cost of your mortgage, for example. Premiums are usually cheaper than other types of endowment policies.
  • With profit endowment policies. With profit policies still pay out a set amount on maturing (for example, enough to pay off your mortgage), but they also pay an extra amount if the investments made a profit. Note that, if the investments don’t perform well, you might actually get less money than you need to cover your mortgage, or other debts you wanted the policy to cover.
  • Unit linked endowment policies. This type of policy relies only on the success of your investments, without the additional security of a set lump sum. You can usually choose which funds you invest in and change them during the policy’s term.
  • Whole of life endowment policies. Whole of life policies don’t mature after a set number of years, but instead cover you for your whole life. This means that the payout will only be handed out when you die, so that your beneficiaries can cover your mortgage if it’s not paid off, pay for your funeral, or use the money for other expenses.

Difference between endowment and whole of life insurance

You can get whole of life policies with an endowment (meaning, investment) option. The main difference between regular endowment policies and whole of life policies is that endowment policies mature after a certain number of years. This means that you get a lump sum payment at the end of the policy terms (usually between 10 and 25 years), even if you’re still alive.

Whole of life policies cover you for your entire life, and so only pay out when you die. Your beneficiaries can use the money in whatever way they choose (unless the policy is specifically linked to your mortgage and it’s not paid off yet).

Bottom line

Like with a regular investment portfolio, taking out an endowment policy poses a risk, as the market can fall as well as rise.

If you’re willing to take the gamble, you could end up with a better payout, but be sure that you understand the risk involved.

If you want to guarantee your loved ones get at least a certain amount when you die, or at the end of the policy term (whichever comes first, unless you take out a whole of life policy), then opt for a policy that comes with a set payment, and with the investment profits an extra on top of that.

Compare life insurance providers

Data indicated here is updated regularly
Name Product Cover options Age range at application Cover amount Pays out % claims paid Offer Link
Aegon
Aegon
Level term cover, decreasing term cover, increasing term cover, whole of life cover and family income benefit.
18-84
£1million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
96%
Compare providers
AIG
Level term cover, decreasing term cover, increasing term cover, whole of life cover and family income benefit.
18-84
£1million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
96%
£75 Amazon giftcard. Terms and conditions apply.
Compare providers
Aviva
Level term cover and decreasing term cover.
18-89
£5million
If you die or get a terminal illness and aren’t expected to live longer than 12 months.
98.9%
£75 Amazon giftcard. Terms and conditions apply.
Go to site
HSBC
Level term cover and decreasing term cover.
17-69
£250,000
If policyholder dies, the sum decided will be paid out.
100%
Compare providers
LV=
Level term cover and decreasing term cover.
17-79
£10million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid
99%
Compare providers
Royal London
Level term cover and decreasing term cover.
18-70
£500,000
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99.7%
Go to site
Scottish Widows
Level term cover and decreasing term cover.
18-64
£2million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99%
Compare providers
Vitality
Level term cover, indexed term cover, decreasing term cover and family income term cover.
16-74
£20million
If a policyholder dies or is diagnosed with a terminal illness, critial illness could lead to an earlier payment.
99.8%
£100 Amazon giftcard. Terms and conditions apply.
Compare providers
Zurich
Level term cover.
16 - 83
£40million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99%
£100 Amazon giftcard. Terms and conditions apply.
Compare providers
Legal & General
Level term cover.
18-77
£3million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
97%
Up to £150 amazon.co.uk or M&S gift card with life cover.
Go to site
Canada Life
Canada Life
Level term cover, increasing term cover and decreasing term cover.
18-80
£1million
If you die or get a terminal illness and aren’t expected to live longer than 12 months.
100%
The Canada Life app, access to discounts and benefits.
Compare providers
loading

Compare up to 4 providers

Frequently asked questions

More guides on Finder

  • Fidelity pension

    Find out about the Fidelity self invested personal pension (SIPP) including what you can invest in, what features are available and how much it costs.

  • Lexus IS200 insurance group

    Find out which insurance group the Lexus IS200 falls under and how much it costs to insure.

  • Lexus CT200 insurance group

    Find out how much it could cost to insure the Lexus CT200 based on your age and location.

  • MG ZR insurance group

    Find out which insurance group the MG ZR falls under and how much it costs to insure.

  • MG3 insurance group

    Find out how much it could cost to insure the MG3 based on your age and location.

  • Daewoo Matiz insurance group

    Find out which insurance group the Daewoo Matiz falls under and how much it costs to insure.

  • Invest in the Nikkei 225

    Find out more about the Nikkei 225, some companies that make it up and how you can invest in the Nikkei 225.

  • Invest in the Euronext stock exchange

    Find out about the Euronext stock exchange, how it works, some companies listed on it and how to invest in Euronext ETFs and shares

  • Student gadget insurance

    Find out what gadget insurance for students includes, who qualifies for it and how to find the best cover for you at the best price.

  • Peugeot 3008 insurance group

    Find out which insurance group the Peugeot 3008 falls under and how much it costs to insure.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site