Endowment
An endowment is a life insurance policy that is designed to provide a lump sum on the maturity date of the policy or on earlier death or, if included, critical illness, of the insured person.
There are several types of endowment policy:
Full-Cost Traditional With Profits
Low-Cost Traditional With Profits
Financial Strength of With Profits Insurance Companies:
The financial strength of an insurance company that is extremely important in regard to with profit endowments, as the solvency margins will have an effect upon the asset mix of the underlying with profits fund.
For example, in recent years, many with profits funds have severely reduced the element of stocks and shares held within the fund and correspondingly increased the percentage of government and corporate bonds, with the aim of reducing the risk of stock market falls affecting the value of the fund.
However, this strategy may have the effect of lowering overall returns, as any funds invested primarily in bonds would not receive the full benefit from any long-term 'stock market' growth.
