What Is a Unit Linked Endowment?

A unit linked endowment is a combination of an insurance policy designed to provide for descendants after the policy-holder's death and an investment plan meant to provide benefits to the policy-holder while still living. As with other insurance policies, regular premiums must be paid to provide the coverage. The difference with a unit linked endowment is that an individual can set aside some of the premium for different types of investments, which can potentially increase the value of the overall policy. Benefits are paid out either when the term of the policy runs out or when the person holding the endowment dies.

It is common for people to be concerned with how they will provide for themselves once they have passed the age where they can work for a living. Another major concern for those who are getting older is making sure that their loved ones will be covered after their death. One type of plan that manages to combine the benefits of typical life insurance policies with those of a retirement investment plan is a unit linked endowment.

The policy known as a unit linked endowment gets its name from the fact that those people who choose this plan buy units of coverage. These units are essentially the premium on the insurance policy. Where this type of endowment differs is that those units can be used to buy into investment funds. As such, the value of those units can rise or fall depending on how the various investments which are chosen by the fund manager perform.

There is a flexibility built into a unit linked endowment that makes it worthwhile to many individuals. They can choose where the money they pay on premium goes, either into more insurance or for more investments. Endowment holders are generally issued statements at regular intervals letting them know how many units they have purchased and how much those units are worth. If the policy expires before the policy-holder dies, he or she will receive the lump sum including the premium and whatever bonuses have been reaped from the investments. Should the person die before the policy expires, the policy's benefits would go to the chosen descendants.

In some cases, a unit linked endowment may be combined with a mortgage to help a person pay off the money owed on a home. People who choose such an endowment must realize that there is no guarantee that the investments will gain money. Should the investments struggle, there is a good chance that the policy-holder will receive far less in insurance coverage or retirement benefits than they might actually need.