Endowment life insurance

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 10 to 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 it 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 annual 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?

The following are some scenarios where you might consider taking out an endowment life insurance policy:

• 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 it 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 by just the interest offered by a standard bank account. On the flip side of that, they can also diminish 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 into 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 (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

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Name	Product	Cover options	Age range at application	Cover amount	Pays out	% claims paid	Offer	Link
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...
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	Compare	loading Fetching your data...

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Frequently asked questions

• Why should I be wary of online calculators?

  Many insurers have endowment life insurance online calculators on their web page to help you see how much you would have to invest to get a certain lump-sum payout. However, these calculators only show an indication of possible returns, which are not guaranteed and can fluctuate along with wider market dynamics.

  The best way to find the right endowment life insurance policy for you is to shop around and compare policies using both specialist sites and price comparison websites. You can also talk to an independent financial adviser to help you in your search.

• How to sell your endowment policy?

  If you want to sell your endowment, you can use a traded endowment specialist on the TEP market, which is a company that buys endowments to sell on to another investor.

  You can use comparison tools online to find the best deal for your portfolio. To do this, use the amount each TEP company offers you and compare it to the surrender value your original provider gave you. Some companies might up their offer if you let them know another company offered you more.

  When you’ve chosen a company to sell to, it will send you paperwork to fill in. When you send this back, it will contact your insurer to transfer your endowment and send you a cheque or bank transfer when the sale is complete. The policy will no longer be in your name, and the TEP buyer will let you know the date you can stop making monthly payments.

• How long does it take to get your money when selling an endowment?

  On average, selling your endowment takes around three weeks, but it depends on who’s buying it.

  If you’re selling directly to an investor, then you’re likely to have a broker act as a middleman. This usually takes longer than three weeks because you have to wait until the broker finds someone who wants to buy the endowment.

  Selling to a company will be faster since these companies hold a range of different policies that they can sell to investors later.