Unit Linked Endowment

This is a method of building a capital sum. By investing in a unit linked endowment assurance contract you can hope to gain an amount on maturity at least equal to the loan.

The value of the policy is dependant upon the length of time the policy is held before encashment. Once initial expenses have been covered in the early years the cash value is generally the value of the units allocated to the policy at bid price.

Unit linked policies can be adapted if a new mortgage loan is arranged. They often include flexible options to increase or decrease the amount of the investment, life cover and term.

Advantages:
• The policy provides a guaranteed death benefit (ie the loan will be paid off in the event of the borrower's death) if he dies before the end of the mortgage term.
• It can offer a choice of managed and specialist investment funds of varying levels of risk.
• It can be advantageous to the borrower who wishes to exercise a degree of control over his contribution investments.
• There is often an option available to switch funds as investment conditions alter.
• If the policy performs well the borrower may have the option to repay the loan early or, if the loan runs to maturity, there may be a cash surplus.
• Possible returns may be greater than the equivalent with profits policy.

Disadvantages:
• The value of a unit linked endowment policy can go down as well as up.
• There is no guarantee that it will repay the loan.
• Higher risk than the equivalent with profits endowments.
• There may be a need to increase the premium if the value is considered insufficient to repay the loan.