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 Endowment Policy Introduction :: |
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The following pages will give you an overview of the types of endowment policy that currently exist and also some facts and expert opinions about their future. For more detailed information you should contact either your life company, your IFA (Independent Financial Advisor) or the FSA (Financial Services Authority).
Types of Endowments
UK Life offices (for example Standard Life, Prudential, Legal and General and Norwich Union) offer a number of different types of endowment policy such as:
Why do Mortgage Endowments have such a bad reputation at the moment?
The simple answer is that that 80% of Mortgage endowments have been falling short in 2003 and 2004 or have been forecast to have a shortfall at maturity.
Why is this happening? The main reason is that most UK Life Companies have until recently invested up to 60% of their With Profits Funds into Equity. Although the smoothing principle, which has successfully been applied for the last 20 years and withstood most adverse effects in the market could not withstand the rapid and sustained decline in the stock market. This has forced life companies to use more of their reserves than planned. As a defence and in order to stabilise their with profit funds and protect existing policyholders companies have reduced the level of exposure to equities to about 45%. Also we have seen a steady reduction in bonus rates thus affecting the maturity values of policies. Official figures show that up to 60% of Mortgage Endowment Policies will not reach their original target amount and will leave some policyholders with severe shortfalls.
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