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Low start endowments

This is a development on the low start policy. With this policy initial premiums start low and increase over the years. These policies are designed for the house purchaser who is on a very tight budget but has expectations of pay rises in the future.   Examples are an initial premium which is 50% of the full premium, and the premium increases by 5 or 10% each year until it reaches the required full premium level.

The low initial premiums do not affect the sum insured or the bonuses which continue throughout the policy on the normal low-cost basis.

Flexidowments

To combat the fixed maturity date of a normal endowment policy, these flexidowment polices were introduced around the 1970’s. These policies are written on an open ended contract with no surrender penalty usually after the first ten years.

The surrender value is usually partly guaranteed and is more akin to an early maturity value. For convenience the life insurance policies are usually written as long term with-profit endowments for 25 years or so or to the age of 65. However the policy is written the aim is to provide a maturity value at any time after ten years.

Often these policies are issued as a collection of smaller policies so that the policy holder can surrender only a few policies at a time to suit their needs.

Unit-linked endowments

Many unit linked savings plans are written as long term or ten year endowments with the option to extend for further ten year periods. A specific percentage of the premium is allocated to purchase fund units at the price ruling on the day of payment. In the first year units (or a percentage of units) may have to be purchased as ‘initial units’ (with their higher management charge). The number/percentage of initial units that need to be purchased will vary from life office to life office.   The basis is normally the older the life insured the lower the allocation percentage. As the policy continues to run so more and more units will be purchased and its value will increase.

The contract will have at least enough life cover to be regarded by the Inland Revenue as a qualifying contract. This means that the policy will provide a level of guaranteed life cover and that on early death either the guaranteed sum insured will be paid or the bid value of the units, which ever is the higher.   Because of the life cover element these policies need to be underwritten.

The value of the policy on maturity will be the bid value of the units. If the policy holder wished to cash in the policy before the maturity date, then the policies value would be the bid value of the units less any early surrender penalty or discontinuance charge. Most surrender penalty charges only operate during the first ten years or so of a policy.

Most life policies can be issued on a single life, or joint life basis.   These life insurance plans are often issued as a cluster of smaller policies to allow for partial surrender of a few policies at a time. This makes the arrangement more flexible and can have some taxation advantages.
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