Policies are typically with-profits or unit-linked.
Full endowments
A full endowment is a with-profits endowment where the basic sum assured is equal to the death benefit at start of policy.
Low cost endowment (LCE)
A low cost endowment is an with-profits endowment policy with reduced basic sum assured (typically 1/3 of the target amount) with an element of life assurance. The idea is that the life assurance element and basic sum assured repay the target amount on death.
These plans were originally designed to act as a mortgage repayment vehicle.
Unit-linked endowment
The premium is invested in units of a unitised insurance fund. Units are encashed to cover the cost of the life assurance.
Modified Endowments (U.S.)
These were created in the Technical Corrections Act of 1988 (H.R 4333, S. 2238) in response to single-premium life (endowments) being used as tax shelters . They are contracts with fewer than 7-level annual premiums, and are subject to more stringent tax regulations (tax code 7702, 7702A). They are also subject to IRA-like annuity rules (such as penalties for pre-death proceeds before age 59½). If a life insurance policy is changed and then fits the seven-pay rules, it may then be redifined as a modified endowment.
See also
- Life assurance
- Investment
- With-profits policy
- Unitised insurance funds
- Collective investment schemes