Traditional with Profits Endowments

Endowment life insurance is the type of insurance which is for a certain time period only say 10 years,5years and so on. The insurance company guarantees to pay a certain amount of money to the insurer according to how much the premium is. This maybe increased as the premium paid price gets bigger. The money invested can be withdrawn after the contract is over.

  There is an amount guaranteed to be paid out called the sum assured and this can be increased on the basis of investment performance through the addition of periodic (for example annual) bonuses.  Regular bonuses (sometimes referred to as reversionary bonuses) are guaranteed at maturity and a further non-guaranteed bonus may be paid at the end known as a terminal bonus.

  During adverse investment conditions, the encashment value or surrender value may be reduced by a 'Market Value Reduction' or MVR (It is sometime referred to as a market value adjustment but this is a term in decline through pressure from the Financial Services Authority to use clearer terms).

 The ideas of such a measure is to protect the investors who remain in the fund from others withdrawing funds with notional values that are, or risk being, in excees of the value of underlying assets at a time when stock markets are low.  If an MVA applies an early surredner would be reduced according to the policies adopted by the funds managers at the time.

Endowments have been criticised, in the past, for offering low surrender values and providing poor levels of flexibility during periods when a client has an inability to make payments. As apposed to a mortgage lender whom may allow for a degree of flexibility in such circumstances, as a consequence of redundancy etc, life companies will often make a plan 'paid up' if premiums are not studiously maintained.