Full-Cost Traditional With Profits Endowment
Historically, traditional with profits endowments were set-up on what is known as a 'full cost' basis.
A 'full-cost' endowment provides the same guaranteed sum assured on death and when the policy matures. This provided a certainty of the cash return to the policyholder.
If a full-cost with profits endowment was used to pay-off a mortgage, there would be no risk whatever of any shortfall in the amount required to repay the mortgage, as the maturity payout was guaranteed.
There are two types of bonus, annual bonuses (also known as reversionary bonuses) and a terminal bonus.
The annual bonus is declared as a percentage of the full sum assured. There is no advance guarantee that any annual bonus will be declared, however, once declared, it is then guaranteed to be paid out at the maturity date.
There is no guarantee, however, that a terminal bonus will be paid The endowment provider will decide in the year the policy matures whether or not to pay a terminal bonus, and if so, how much.
