Life insurance with savings: endowments and cash-in values

Endowments and some whole of life plans include savings. Pure protection policies have no savings or investment element.

The Financial Conduct Authority (FCA) describes pure protection as long-term insurance for you and your dependants. It helps with existing financial commitments or lifestyle adaptations if you die or become incapacitated, injured or infirm.

The FCA's pure protection list covers term assurance, stand-alone and accelerated critical illness cover, and income protection. It also includes whole of life insurance, including guaranteed acceptance over 50s plans.

Pure protection cover lasts only while you keep paying the premiums. If you stop, the policy lapses and nothing is paid out, however long you've held it.

Some policies put part of your premium into a fund that may grow over time. The FCA doesn't count these as pure protection. Savings endowments and some whole of life plans work this way.

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No. Term cover has no cash value, so you get nothing back if you reach the end of the term without a claim.

Term insurance covers you for an agreed period, such as five, ten or 25 years, and pays a lump sum if you die during it. A pure protection contract has no surrender value. (If it's bought with a single premium, the surrender value can be no higher than that premium.)

Insurers' own documents say the same. At Aviva, you stop paying at the end of a Life Insurance Plan term and your cover ends, with no money back. Legal & General says its life and critical illness policies have no cash value and won't pay out if you reach the end without a valid claim.

Mortgage protection policies for repayment mortgages work the same way. HMRC says these reducing-term policies, designed only to pay off the mortgage if the borrower dies, have no investment element and should build up no surrender value.

Looking for a policy that pays out after a fixed period as well as when you die? That's a savings endowment, not term cover (see endowment policies).

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An endowment puts life cover and saving into one policy. It pays out after a fixed period or when you die.

It's a long-term investment: you pay a regular premium. Life cover is always included, and the insurer takes its cost from the returns on your investment.

That cost depends on how old you were when the plan started, and charges tend to be higher if you're older. The Financial Ombudsman Service says the cost of life cover can make a big difference to your return, even though you may not have needed it.

Endowments go by different names. Most savings endowment complaints the Ombudsman sees involve ten-year savings plans, endowment savings plans and maximum investment plans. Complaints it looks at include policies that haven't returned enough to be worthwhile, and charges, such as the cost of life cover, that were too high.

Scottish Friendly, for example, lists endowment assurances among its main UK life insurance products, alongside whole of life policies, term assurance and ISAs.

With-profits endowments

HMRC says with-profits policies have traditionally been the most common investment-type life policy, often used for endowments, including mortgage endowments. Each has a minimum sum assured (the amount it pays out) that grows as the insurer declares bonuses.

Annual (reversionary) bonuses are generally declared year by year, and once they're added they're guaranteed. The insurer may also add a terminal bonus at maturity (the end of the plan) or on surrender, at its discretion.

HMRC says the advantage of with-profits is that it smooths returns, which protects you to some extent from stock market falls. Some insurers have also made market value reductions, which cut the value of reversionary bonuses. They may be applied if the fund's assets fall in value and its viability is threatened.

Unit-linked policies and cashing in early

Unit-linked (or investment-linked) policies work differently. Their benefits depend on the value of a collection of investments, typically shares, bonds and perhaps property. What's paid on death, at maturity or on surrender depends on the contract, and the sum may depend on what those investments are worth.

The surrender value is the cash a whole life or endowment policy is worth if it's stopped. It can be small in the early years, when expenses are high and there's been little time for growth.

Mortgage endowments and complaints

With an interest-only mortgage, you pay off the amount borrowed at the end of the term with savings, investments or other assets (known as repayment plans). Regular savings plans (endowment policies) are one way to do this.

The value of investments can rise and fall. MoneyHelper warns that you could lose all your money before you're able to pay off the mortgage.

Some mortgage endowment holders have had a high-risk warning letter, also called a 'red' letter. It tells you there's a high risk the policy will pay out less than expected when it matures.

Special time limits apply to mortgage endowment complaints. Under rules in place since 1 June 2004, you generally have three years from receiving a high-risk warning letter to complain to the Financial Ombudsman Service. That's as long as you were told the final date to complain at least 6 months before it ran out.

Protection if an insurer or friendly society failsIf an insurer failed after 8 October 2020, the Financial Services Compensation Scheme (FSCS) protects long-term insurance at 100%. It repays whole of life, term life and critical illness claims in full, once the insolvency practitioner accepts them. Protected mutuals and friendly societies count too. Where one provided life insurance, or a savings product set up as long-term insurance, the limit is 100% of the amount due under the contract. The failed firm must have been regulated by the Prudential Regulation Authority (PRA).

Only some do. Plans with an investment element can build up a cash value. Protection-only plans, such as current ones from Aviva, Legal & General, Royal London and Zurich, have none.

Whole of life insurance pays out whenever you die, as long as you keep up your premiums (see term vs whole of life insurance). The Association of British Insurers (ABI) says some plans invest your premiums, building a cash value you may be able to withdraw or borrow against. Some also have a withdrawal clause that lets you cancel the plan and take a cash surrender value.

Part of the premium goes into a fund that may grow, so the FCA doesn't count these plans as pure protection. As with an endowment, the surrender value can be small in the early years.

Check how the premiums work too. MoneyHelper says whole of life premiums are reviewed every five or ten years and can rise until they're unaffordable. If you live longer than you expected, you could pay in more than you get out.

Not every plan is reviewable. Aviva says the amount you pay for its Whole of Life Insurance+ won't change unless you choose increasing cover or make changes to your policy.

FCA figures from ABI data show whole of life made up the largest share of pure protection policies in force in 2023 (36%), though few new ones were sold. About 0.2 million whole of life policies were sold in 2024, mostly guaranteed acceptance over 50s plans. Around 36,000 were underwritten whole of life policies, where you answer questions about your medical history and health.

If you have an older whole of life plan, check its policy documents or ask the insurer whether it has a cash value. The current protection-only plans below say they have none.

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No. Guaranteed acceptance over 50s plans have no surrender value. Providers such as Legal & General, National Assurance, OneFamily and Scottish Friendly say their plans aren't savings plans.

A guaranteed over 50s plan is a whole of life plan for people over 50 that doesn't ask about your health. You pay a fixed monthly premium, and the policy guarantees to pay a cash lump sum to your beneficiaries when you die.

MoneyHelper warns that you could pay more into an over 50s plan than you'll get out. If you cancel before the end of the term, you lose all the money you've put in.

The cooling-off period is the exception. Aviva, for example, refunds your premiums if you cancel its Over 50s Life Insurance within 30 days of the start date, but not after that.

How it works out depends on how long you live. The FCA reports that evidence from firms indicates most guaranteed acceptance over 50s policies pay out more than the premiums paid in. MoneyHelper says over 50s cover is usually not considered good value. Take out a plan in your 50s and live to 80 or beyond, and you'll pay in much more than you get out.

An investment link without a cash value

Scottish Friendly's My Mutual Guaranteed Over 50s Plan is linked to investments. Part of each monthly premium goes into its With-Profits fund, which invests in assets such as bonds, property, cash and shares. Its returns also reflect a share of Scottish Friendly's profits or losses. If the fund grows, you could reach your full payout early.

You pay premiums until the policy anniversary after your 90th birthday, unless you die first or reach an Early Premium End Date. Scottish Friendly regularly checks the value of your premiums plus any fund benefits that would be paid on your death. If this ever reaches your full Cash Benefit, you stop paying, and your estate still receives the full Cash Benefit when you die.

Even so, Scottish Friendly says the plan isn't a savings or investment product and has no cash-in value at any time. If you stop paying after at least 5 years, your loved ones still receive part of your cover when you pass away. Stop within the first 5 years and the cover ends, with nothing paid back to your family.

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It can be. Gains on UK life insurance policies, called chargeable event gains, are taxed as income. HMRC's helpsheet HS320 covers them.

Basic rate tax may be treated as already paid on the gain. In that case, only higher or additional rate taxpayers owe more. These gains aren't capital gains, so you can't set capital losses or the annual exempt amount against them.

Qualifying vs non-qualifying policies

HMRC says the most important distinction for tax is between qualifying and non-qualifying policies. Qualifying policies usually don't produce a chargeable event gain; non-qualifying policies often do.

A qualifying policy generally runs for at least 10 years, with fairly even premiums paid at regular intervals, such as weekly, monthly or annually.

A premium limit applies to qualifying policies taken out on or after 21 March 2012, or taken out earlier and changed after that date. The premiums payable by any beneficiary across all such policies must be under £3,600 in any 12-month period.

Non-qualifying policies are all the others, and they're often single premium policies (paid as one lump sum). HMRC lists these among the most common times a gain arises:

• you get cash or other benefits from a full or part surrender (cashing in) of the policy
• the policy matures, or ends because the person insured dies
• the policy, or part of it, is sold or assigned (transferred) for value

A qualifying policy can still produce a gain. This could happen if it's surrendered, or premiums stop, within the first 10 years, or if the £3,600 premium limit is breached.

Part surrenders and the 5% tax-deferred allowance

Taking part of the money out uses what HMRC calls a '5% tax-deferred allowance'. Each insurance year, the gain on a part surrender is the amount you take out, less your unused allowance.

The allowance is 5% (one twentieth) of the premiums paid that year and each earlier year. It's capped at 100% of the premiums, which you reach if 5% is taken for 20 years in a row.

Disproportionately large gains tend to arise early in a policy's life, HMRC says, often because people have taken out far more than their 5% allowance. UK insurers must by law send you a certificate if they know a gain has been made on your policy.

Mortgage protection is different. Policies designed only to pay off a repayment mortgage if an individual borrower dies are outside the chargeable event rules. That applies as long as the mortgage is on the borrower's home or on premises they use for their own business.

These policies have no investment element and should build up no surrender value, so they're unlikely to produce gains anyway.

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Pure protection cover, such as term cover, isn't a way to save: it has no savings or investment element.

Where a policy does combine the two, as a savings endowment does, the insurer takes the cost of life cover from your investment returns. The Financial Ombudsman Service says that cost can make a big difference to your return, even though you may not have needed the cover.

If you want both, you don't have to buy them in one policy. You can choose a pure protection policy from the types of life insurance and keep your savings or investments separate:

• Term life insurance pays a lump sum if you die within an agreed period. MoneyHelper says life insurance usually makes sense for couples or parents, or anyone with dependants or a partner who relies on their income. It wouldn't suit someone with no dependants, as it only pays out when you die (see is life insurance worth it?).
• Savings and investments held separately. MoneyHelper's examples of ways to repay an interest-only mortgage include a savings account or ISA, though some lenders no longer accept cash savings for this. Others are a stocks and shares ISA, pensions, investment bonds, shares, unit trusts and endowment policies.
• Whole of life insurance, if you want a payout whenever you die, as long as you keep up the premiums. It's often used for Inheritance Tax planning. See also our whole of life insurance calculator.
• A guaranteed over 50s plan, usually for people aged 50 to 85, guarantees a lump sum on death without asking about your health, though it has no surrender value.

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• Term life insurance
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Before you change or cancel a plan, check its documents, its surrender value and how it's taxed.

1. Find the policy paperwork Look for the policy document, the latest annual statement and the insurer's name. If the company has since merged or closed, our guide to finding lost life insurance policies explains how to trace it.
2. Ask the provider where the plan stands If you're unsure what sort of policy you have, HMRC says to ask your insurer. For an interest-only mortgage, MoneyHelper suggests asking your product provider, fund manager or financial adviser whether your investments are on track to repay it.
3. Check whether cashing in triggers tax Ask whether it's a qualifying policy and whether there's been a chargeable event gain. Even a qualifying policy could produce a gain if it's surrendered, or premiums stop, within the first 10 years, or if the £3,600 premium limit is breached.
4. Check early surrender values and reductions An early surrender value can be small, and some insurers have made market value reductions to with-profits bonuses. MoneyHelper says that unless you understand how an investment works, it's best to speak to a financial adviser.
5. Compare pure protection cover separately If you want pure protection life cover rather than a savings plan, our broker partner, Reassured, compares quotes from a panel of leading insurers. Its quotes are free, with no obligation.