Mortgage Protection

A particular form of term policy is one designed merely to pay off the outstanding debt on a repayment mortgage in the event of the death of the mortgagor. This is called a 'reducing term policy'. It costs in premium even less than ordinary level term because the insured amount falls in line with the reduction of the outstanding amount of the mortgage.

Endowment assurance

Endowment assurance, unlike simple term assurance, provides not only protection for your dependants in the event of your death during its term but also a profitable means of saving and investing for your own future. In exchange for the regular premiums the insurance company undertakes to pay the amount of the policy either to you personally at the end of the selected period, or to your estate should you die in the meantime.

For the younger person in first-class health the best kind of endowment policy is the 'with-profits' one. The claim value of this kind of policy is the original face value plus accrued `profits' or bonuses that are declared annually (or at longer intervals) and which are added to the guaranteed amount which will be paid at the end of the endowment period or on prior, death. Most with-profits policies also enjoy what is called a 'terminal' or 'claims' bonus - that is to say, when the policy becomes a claim, either on maturity or on prior death, the amount to be paid out consists not only of the original amount plus accumulated 'reversionary' bonuses to date, but also an additional final bonus determined by the then capital profits made by the insurance company on its investments. The terminal bonus is less accurately predictable than the regular or reversionary bonuses, so it should be looked on more as a windfall gain rather than as an anticipated investment yield.

Premiums on a with-profits policy are naturally higher than those on a without-profits policy but, pound for pound, they are usually a better buy from an investment point of view.

With-profits

Both whole-life and endowment policies can be arranged on a with-profits basis. When you obtain a quotation from an insurance company, the estimated maturity value will be based on the current bonus rates being declared and will project on this basis what the policy will be worth at the end of the period.

With a good life office the value in 25 years' time of a with-profits endowment policy could well exceed three times its original amount. But bonuses are not guaranteed until they have been declared, for the rates depend on profits yet to be earned.

• Whole-life Assurance
• Unit Trusts