U6: T21 - USING ENDOWMENT POLICIES FOR MORTGAGE REPAYMENTS Flashcards
An endowment policy involves what 2 characteristics?
1) Life insurance
2) Investment Element
What are the 2 types of with-profits endowment policies?
1) Full with profits
2) low-cost with profits
What does the reserve on an endowment policy allow the endowment policy to do?
Pay bonuses when fund performance would not usually allow them to
Define GSA
Guaranteed sum assured, the amount that will be paid on maturity (or death if this occurs earlier), assuming premiums are paid as required.
Define Smoothing
Creating a reserve in years of good fund growth rather than paying all the growth out in bonuses, so that in poorer years it may still be possible to pay a bonus.
Which of the two endowment policies have terms most clearly laid out?
A) With-profit
B) Unit-linked
Unit-linked
Which of the two endowment policies have terms most clearly laid out?
A) With-profit
B) Unit-linked
Unit-linked
What was the endowment originally intended to support interest-only mortgages?
Full with‐profits endowment is the original product designed to support interest‐only mortgages.
Which of the following guarantees mortgage repayment at the end of the term?
A) Full with-profits
B) Low-cost with-profits
A) Full with-profits
Which of the following has decreasing term assurance into the endowment?
A) Full with-profits
B) Low-cost with-profits
B) Low-cost with-profits
A low-cost with profits gives the possibility of there being a surplus above a mortgage at the end of the endowment term. True or false
True
Bonuses are guaranteed for low-cost with profits endowments. True or false
False. Bonuses are not guaranteed
With low-cost with profit endowments it is often difficult to identify product charges. True or false
True. Often difficult to identify product charges
Terms can be extended on low-cost with profit endomwments. True or false
False.
Inflexible policies: term cannot be extended and increasing premiums may not be possible
What provides the potential for higher returns than with‐profit policies?
Unit-linked policies
An endowment policy with no GSA is:
A) With-profits
B) Unit-linked
B) Unit-linked
The policy value is linked directly to the performance of the policyholder’s chosen investment funds, which can result in higher returns if the funds perform well, but there is no ‘bottom line’ guarantee such as the GSA provided by a with‐profits policy.
For unit-linked policies, the only guarantee is that the policy will pay a guaranteed death benefit equal to the mortgage amount if the insured dies during the term. True or false
True
For unit-linked policies apply smoothing. True or false?
False.
The value of units (accrued via Premiums) is directly related to the performance of the fund, so there is no smoothing effect because growth (or loss) is directly reflected in unit prices.
Endowment policies with no bonuses are which kind of policy?
Unit-linked policies
Unit-linked endowment include life cover. True or false
True. Premiums buy units in the fund which pays for life cover, admin and benefits