Endowment Mortgages

Most endowment policies linked to mortgages are actually “low-cost” endowment policies. What this means is that while the sum insured for life insurance purposes will be the same as the mortgage amount, the actual guaranteed pay-out on the endowment savings plan may be as little as a third of that amount.

The reason is that an endowment policy guaranteeing to cover the mortgage would be obviously too expensive for the borrower (and, therefore, impossible for a financial adviser to sell).

The difference between the savings plan’s sum assured and the mortgage is assumed to be made up by the profits accruing to the plan during the life of the policy. However, the three-year bear market in equities in the early years of the new millennium resulted in many borrowers facing a shortfall on policy return.

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