Topic 21 Using Endowment Policies for Mortgage Repayment Flashcards
(59 cards)
What are the two elements of an Endowment Policy
- Life Assurance
- Investment element
What is having an advantage of having an Endowment Policy over a personal pension or an ISA?
Life cover is built in
What does a With-Profits Endowment offer Policy holders apart from life cover?
Potential for capital growth
The 2 types of With-Profits Endowments are what?
- Full With-Profits
- Low cost With-Profits
This is what part of a With-Profits Endowment?
- Premiums invested in blue-chip shares, Gilts, Bonds & Cash
- Fund manager takes cautious approach to investment
Premiums invested in with profits fund
This is what part of a With-Profits Endowment?
- Cover current & future liabilities eg death benefits, GSA & bonuses already declared
- Cover admin expenses
- Provide a reserve
Fund assessed annually & money set aside
This is what part of a With-Profits Endowment?
- Once added bonuses cannot be removed from death or maturity value
- Bonuses maybe reduced if plan surrendered early
- Declaration & amount discretionary
Balance of fund provides bonuses
What does “Smoothing” mean in term of a With-Profits endowment?
A reserve of funds created from good investment years to pay out funds during years with investment are poorer
If a “With-Profits Endowment” is surrendered early what is not going to be received by the policy holder?
- Guaranteed death bonus
- Reversionary (annual) bonuses
What is the Guaranteed Sum Assured (GSA)?
Amount paid out on maturity or death
When does a “Joint Life First Death Endowment” policy pay out?
- Maturity
- Death of the first policy holder
What is a “Revisionary Bonus”?
Annual bonus added to a policy each year
When a “Revisionary Bonus” is added is it?
Guaranteed to be paid or Not Guaranteed to be paid
Guaranteed to be paid
How much of the policy value could a “Terminal Bonus” represent?
40%
How much is the stated monthly policy fee for the administration of a With-Profits Endowment?
£2 - £3
Where are the costs of managing the investment funds of a With-Profits Endowment taken from?
The investment fund
When a person cashes in a With-Profits Endowment policy early what may the company charge?
Market Value Adjuster (MVA)
What does it mean if a “With-Profits Endowment” is paid up?
When a policy is discontinued by not surrendered
With a “Full With-Profits Endowment” the “Guaranteed Sum Assured (GSA) is how much?
The mortgage amount
What is a disadvantage of a “Full With-Profits Endowment” over a low cost endowment?
It is more expensive
The “Low-Cost With-Profits Endowment” has a Guaranteed Sum Assured (GSA) of how much of the mortgage?
50%-60%
How are the premiums of a “Low Cost With-Profits Endowment” worked out?
Guaranteed Sum Assured + anticipated revisionary (annual) bonuses
On the event of death of a “Low-cost with profits endowment” holder what additional type of assurance is added to ensure the mortgage can be repaid?
Decreasing Term Assurance
A low-cost low start endowment policy is similar to a low cost with profits endowment the exception is the policy premiums start less and increase. In the first 5 years how much do the premiums increase by each year?
20%
