Jargon Buster - Definition of Endowment

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is a life insurance policy that pays out a lump sum of money in the event of the death of the life assured or if the policy reaches its maturity date. Endowments are classed as a combination of savings and insurance where the money is usually invested in stocks and shares over a period of time.

As the money is invested, there is an element of risk and many people have found that endowments have not produced the expected or desired return in comparison to the amount of money paid into them. As the premiums are often reviewable, many people have had to cash in their endowments early because the premiums became too expensive to continue paying in to.

Many people took out endowment mortgages in the past so that they had their life insurance and savings tied into their mortgage. In theory this meant that at the end of the endowment, i.e. the maturity date, the mortgage would be paid off by the endowment. These polices are usually not offered anymore as many people found that they didn't provide enough funds to pay off their full mortgage or that they had to cash in the endowment early as it became unaffordable.

Please note that all definitions are intended for general guidance only. For official and current definitions you should always double check your policy wording.

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