Endowment Policy

A with-profits endowment policy is a contract written by a Life Assurance company to pay a fixed sum (called the basic sum assured), plus accumulated profits that are declared annually, to an assured person on a fixed date in the future (or to his/her estate if the person dies prematurely), provided that the premiums have been paid as required by the contract. Policy contracts are assignable, allowing the assured person to irrevocably pass the beneficial rights to a third party such as a mortgage lender, a bank, or an investor in traded endowment policies.

Endowment Policy contracts are assignable, allowing the assured person to irrevocably pass the beneficial rights to a third party such as a mortgage lender, a bank, or an investor in traded policies. An endowment mortgage would mean that the policy had been assigned to a lender. A regular premium is paid (normally monthly) to a Life Assurance company. A small part of this premium goes towards providing life cover to the original lives assured, but the bulk of it provides funds for the life company to invest for the term of the contract. The profits earned on this investment are apportioned annually to each policy. This is how the final maturity value builds up in a policy.

Each year the actuaries at the life office review the growth made by their investments and they then apportion the profit to all the endowment policies in force at the time, by way of declaring bonuses which are then permanently attached to the Endowment Policy. In effect, the owners of the policies are participating in the profits of the life company.