What are Low-cost with-profits endowment policies ?

Posted by admin On December 24th 2020

The guarantees offered by a full with-profits policy results in higher premiums to be paid. A low-cost or minimum-cost endowment overcomes this obstacle by having a sum assured that is payable on death, whenever death occurs, that is made up of two elements – with-profits and decreasing term assurance.

This type of endowment usually has a 10-year term, which is the minimum qualifying term, with the policyholder making level and regular payments.


A guaranteed sum is paid out upon maturity or early death. Bonuses are added yearly at a declared rate; and upon maturity or early death (whichever comes first) a terminal bonus is added, calculated on a percentage of the total of the bonuses already allocated.


These policies guarantee a death benefit equal to the mortgage, ensuring that it is protected fully. The basic with-profits sum assured is lower than the overall level of mortgage to be funded, meaning that full repayment is not guaranteed.


Bonuses are added over time with the target of building a sum equal to the mortgage by the end of the term. Until the with-profits sum assured plus the bonuses are equal to the mortgage amount, any shortfall on death of the life assured is made up by a decreasing term assurance.

A low-cost endowment policy is a lower cost version of the with-profits scheme. It combines decreasing term insurance with a with-profits endowment. The policy was introduced initially as a more affordable or cheaper way of covering loans for house purchases, with the death sum insured guaranteed to be equal to the loan. Whereas the term insurance element means a guaranteed repayment of the loan upon death, there is no guarantee it will upon maturity.


The amount payable on death is the greater of:


  • The basic sum insured plus any bonuses added to the policy.
  • The guaranteed death sum insured.

Once the initial sum assured, plus the bonuses, increase beyond the mortgage amount, the decreasing term assurance element stops. This policy is suitable for anyone seeking a with-profits plan but finding that the costs of a full with-profits plan to be prohibitive.

The basic insured sum increases yearly, along with the addition of bonuses, until the guaranteed death sum is overtaken. The term insurance element (the difference between the basic sum and the guaranteed death sum insured) decreases as the bonuses are added; and once the guaranteed death sum is met or overtaken, it will cease.