Repayment Options
Endowments
| With profit
| Low cost | Unit
linked | Other | Advantages
| Disadvantages
Other Types Of Endowment Policy
Three other types of endowment can also be found in use
in this country. As with all of the other types, these endowments
involve you paying interest to the lender on the full value
of the loan until the policy matures:
Unitised with profit endowment
This is a hybrid unit-linked endowment, designed to smooth
out price fluctuations that occur with unit-linked policies.
The value of units is declared each year and that value
is then guaranteed. The guaranteed value that is declared
is at a discount to the actual value of the units. The guaranteed
value will not reach the real value until the term of the
endowment is up, so the chance of being able to pay of the
loan early is minimised. This type of endowment is becoming
increasingly common, especially due to the volatility that
has been displayed by the stock market over the last year
or so.
Low-start endowment
This is essentially the same as a low-cost with profit endowment,
but premiums begin at a lower level and gradually increase
over a number of years - usually between five and ten. The
initial premium can be significantly lower than the full
premium, but never lower than half (which is a common starting
point). Premiums may, for example, increase from 50% to
100% of the final value by 20% per year for 5 years or by
10% per year for ten years.
This is another product designed to make it easier to budget
over the first few years of home ownership, when money is
likely to be tighter for many people. As with most products
that work this way, you generally have to pay for it in
the long run. The overall level of premiums you pay will
be higher than with a low-cost endowment, and the cash-in
value will be lower for longer. You are likely to be seriously
out of pocket if you try to cash in your low-start endowment
much before maturity.
Non-profit
The guaranteed death benefit or sum assured
equals the value of the mortgage loan, which guarantees
repayment of the loan if you die. There are no annual or
final bonuses and you therefore have no chance of a cash
surplus on maturity. Essentially, there is no real benefit
to this type of policy other than inclusive life cover.
Non-profit endowments are generally seen as an inefficient
method of saving the money to pay back a mortgage and are
therefore rarely used for such a purpose.
