Endowment Glossary

All the basic technical terms linked with endowment are explained below:

Annual Bonus Declaration

Endowment policy information sent in writing to the policy holder by the insurance company each year. Consists of information about the sum assured, annual bonus and accrued annual bonuses.

Asset Share

The estimated value of the accumulated premiums paid under a policy, as well as attributable investment returns and operating profits.

Contract Note

Confirms the buyers' agreement to purchase the endowment policy - the price and the fact that the buyer has taken responsibility for all future premiums up to the maturity of the policy concerned. All rights and obligations of the endowment policy are transferred on the date of purchase.

Current Accrued Bonuses

Total of reversionary bonuses declared so far as well as any special bonuses declared.

Endowment

A regular savings policy which is a combination of life cover and investment. Can either be bought as a savings plan or be used to pay off a mortgage (endowment mortgage).

Formula Maturity Value (FMV)

The value of a policy at maturity if the current rates of reversionary and terminal bonuses were to remain unaltered. This is unlikely to happen, but FMV is used by brokers as part of the valuation process.

Investor

An investor is a corporate body or individual who purchases an endowment policy for a capital sum and then assumes responsibility for it i.e. pays all future premiums, receives the proceeds of the policy on maturity and any death benefit if the original policy holder dies before maturity.

Market Value Reduction

The Market Value Reduction (MVR) is an adjustment that an insurance company may apply to those policyholders leaving the With Profit Fund at a time other than maturity of their policy or on death. The insurance company will look at the value of the underlying assets of the With Profits Fund at the point of exit and compare this to the value of your policy, including bonuses. If the assets of the Fund are insufficient to support your value of your policy plus bonuses to date, the insurance company reserve the right to scale your surrender value back to more accurately reflect your proportion of the With Profits Fund. The MVR is generally applied in times of adverse investment conditions and is likely to be lower the longer your policy has been in force.

Maturity Date

The date on which the endowment policy expires.

Monthly/Annual Premiums

The amount paid on the policy each month or year.

Paid up

The premiums have been stopped but the policy still 'grows' and keeps running until maturity. Projected maturity value and life cover are likely to be reduced.

Policyholder

The owner of the endowment policy.

Policy Number

An individual number given to the endowment policy by the originating life insurance company. Can be found on all statements.

Reversionary bonus

Annual bonus allocated to the policy. Once allocated, the reversionary bonus cannot be taken away provided the policy is held to maturity, ie, not surrendered or a death claim. Reversionary bonuses are guaranteed additions to the sum assured. Reversionary means that they are not payable immediately but are payable at the same time as the sum assured is paid out.

Start Date

The date that a policy started.

Sum Assured

The amount guaranteed to be paid out when the policy matures or in the event that the policyholder dies before the policy matures as long as all premiums have been paid in full.

Surrender Value

The amount the insurance company will offer you in settlement for your policy if you cash it in now. Please ensure that the Surrender Value has been obtained in the last month. The Surrender Value can be obtained in most cases over the telephone from your insurance company.

Traded Endowment Policy

A Traded Endowment Policy (TEP) is a 'with-profits' policy which has been sold before maturity. Policies include both endowment and whole-of-life.

Unit Linked Policies

An endowment policy where premiums are invested as units in stock market funds. There are usually no guarantees and the value of the policy goes up and down in line with the performance of the particular fund.

Total bonuses

The total bonus is all the annual bonuses that have been allocated to your policy to date. This information is available on your last bonus statement. The statement will show the existing bonuses to date and the current year bonus. The two figures should be added together and submitted in this field. Please ensure that you do not also include the Basic Sum Assured in this figure.

With-profits

A With Profits Fund aims to smooth out the peaks and troughs of equity investment. Your policy will have a minimum sum assured which is the amount that you are guaranteed to get back provided all premiums have been paid. The With Profits Fund will invest in equities, fixed interest securities, cash and commercial property and at the end of the year, the insurance company see how the fund has performed. In years when investment performance has been good, part of the profits will be allocated as an annual bonus based on a percentage of the sum assured, and part will be kept back in reserves. In years when investment performance has not been so good, the insurance company will continue to pay an annual bonus (although this could be reduced) from the reserves that it has built up during the good years. The effect of this is that the value of your policy should increase year on year although when investment returns are high, a With Profit policy is likely to under-perform a similarly invested unit linked policy which provides no guarantees.