The basic characteristic of the endowment is its fixed maturity date. However, as we have already noted, many people wish to save but do not know precisely what they will be doing with the money or exactly when they will want it. For example, a couple may wish to save towards the marriage of a daughter now aged 10 without knowing when this will take place.
For this reason companies have introduced a new generation of endowment polices called open-ended or flexible endowments. They are in the form of endowments maturing at age 65 but with early maturity options, and incorporating - guaranteed cash values at specific dates. The guaranteed cash sum is a basic sum to which bonuses are added. Unlike ordinary endowments, the polices are normally issued in "unit" form, whereby the minimum premium "unit" - usually £15 or £1110 a month purchases specified benefits and life cover.
The level of life cover offered by different policies varies. The minimum amount of life cover for a given premium is determined by the rules relating to "qualifying" policies (see Appendix, p. 171), so that, for example, a £1110-a-month open-ended endowment for a managed 29, where premiums are payable at the policyholder's option up to age 65, must include life cover of 76% of the maximum total premiums payable, in this case a minimum of £13,120.
But some companies provide a good deal more and on some £1110 a month plans it could be over £14,000.
Projected cash values at specified dates for a typical policy are shown in Table 8. These figures assume current bonus rates but do not include terminal bonus.
Table 8 Open-ended with profit endowment policy: projected cash values for £1110 a month policy for managed nearly 39.
Guaranteed sum on death Cash-in value after
10 years 15 years 20 years
£12,550 £111,450 £12,600 £14,250
The guaranteed cash-in values begin only at the tenth year because of the "qualifying" rules, and surrender before this can lead to a tax liability. Apart from the cash-in guarantees, most policies also incorporate two other useful options. The first is that the policyholder may take out more "units" within certain periods. For example, he may be allowed to take out one extra unit for every two he starts within the first five years, and repeat this in the following five years. Most companies now include a charge for such options; the one quoted above could add 10p a month to a £1110 premium. For many people this option is well worth taking up at a very modest cost. The second is what is sometimes called the "cash-and-carry" option, whereby, if the policyholder cashes in a unit at any time, he may take out a new unit to replace it, so long as he is aged under 55 (so that there are still 10 years to go before maturity).
Mr Wills takes out a deferred assurance for his son John, aged 2. The policy is on his own life and matures when John is 18, when a number of options will be available. The gross annual premium is £140, which will provide a cash sum of £1600 at maturity plus bonuses estimated at £1300. (If Mr Wills dies before this date, then no more premiums are payable, an income of £1200 a year is payable to his wife for John's benefit, and the cash sum and bonuses are still payable when John is 18.) When John reaches the age of 18, he can take this cash sum, in which case the policy is... see: Deferred Assurance Example 12