Money Advice Service

An endowment policy is an investment product that you buy from a life assurance company. They are set up as regular savings plans and at the end of a set period pay out a lump sum. The policy includes life assurance, so it will also pay out if you die during the term.

An endowment policy regular savings plan might be beneficial for you if you:

  • want to save for a particular event or goal over the long term, usually at least ten years
  • understand that the value of your investment can go down as well as up and you might get back less than you invested
  • want to receive a non-guaranteed lump sum at the end of your investment term

How are endowment policy regular savings plans used?

Top tip

If you don’t understand a financial product get independent financial advice before you buy.

People might use endowment policies for the following reasons:

  • general investment.
  • a specific savings goal.
  • interest-only mortgages – at one time these types of endowments were a very common way of saving to pay off an interest-only mortgage, but that is no longer the case, as the amount generated by the end of the policy term is not guaranteed to pay off the mortgage amount, particularly if poor performance results from adverse market conditions.

How they work

  • You make monthly or annual payments.
  • Part of your monthly payment is used to buy life assurance. How much depends on your age, sex, and how long the endowment is for.
  • The rest of your payment is invested either on a with-profits basis or a unit-linked basis (see ‘How your money is invested’ below). The size of the lump sum you get at the end of your endowment often depends on the performance of these investments.

How your money is invested

Your money might be invested on a with-profits basis.

This means your savings are pooled with other investors’ money and invested by the insurance company in a range of different investments, typically including:

  • Shares
  • Property, and
  • Fixed-interest investments.

This pool is used to meet the costs of running the insurer’s business and then what’s left over (the profits) are shared with you and the other investors by declaring bonuses that increase the value of your policy.

Alternatively, you can choose policies where you invest on a unit-linked basis.

It’s then up to you to decide how you want to invest your money, by choosing from a range of different investment funds.

These might be funds run by the life insurance company or they might be a range of unit trusts and open-ended investment companies (OEICs) run by separate companies.

You can switch between different funds, if you want to, without cashing in your policy.

The first one or two switches are often free but there might be charges if you switch more often.

Risk and return

  • Endowment policies guarantee to pay back a certain minimum amount provided they are held to the end of the term (unless they are unit linked) or death.
  • The value of with-profits investments is designed to grow steadily as bonuses are added. Usually bonuses, once added, can’t be taken away. But if you cash in your policy before the end of the term, some of the bonuses might be clawed back through a special charge (called the Market Value Reduction, MVR, or Market Value Adjustment, MVA).
  • The value of your unit-linked investments can go down as well as up and you might get back less than you invested. Growth will depend on the performance of the funds you choose. By choosing funds that invest in a variety of investment types, you can weather the ups and downs of the market better. Find out more about Diversifying – the smart way to save and invest.

Access to your money

  • Your money is not easily accessible until the end of the policy term.
  • If you do want to end your policy early, you’ll probably have to pay high charges and penalties.
Learn more about your options from our guide Ending your endowment or whole of life with-profits policy early.


  • There might be an administration fee deducted from each of your regular payments.
  • If you invest on a with-profits basis, various costs and charges are deducted from the investment fund before bonuses are worked out. You can ask the company for a guide explaining how bonuses are worked out.

If you invest on a unit-linked basis, there will be a variety of charges deducted from each fund.

It’s also important to understand any exit charges.

Endowments are a long-term investment, and you might have to pay charges and penalties if you want to get out early.

Safe and secure?

Your money is secure except in the unlikely event of the insurance company going bust.

Read the Financial Services Compensation Scheme.

You cannot claim compensation simply because the value of your investment falls.


The tax you pay on your endowment policy will depend on your circumstances.

Find out more about the Tax advantages of qualifying life insurance investment products.

Where to get an endowment policy

You can buy endowment policies through a financial adviser or directly from an insurance company.

Before you take out an endowment policy you should get a ‘Key Features’ document that explains the advantages and disadvantages of the product.

If you’re still not sure if endowment policies are right for you, it’s best to get financial advice.

There might be an alternative that’s better for you.

If things go wrong

If you’re unhappy with the service you get or you want to make a complaint, read Sort out a money problem or make a complaint.

This article is provided by the Money Advice Service.