Escape-proof policies keep profits secure

Endowment mortgages may be under fire at the moment but other with- profits investments do have their uses. If you are looking for a very long-term savings plan, and can find a way to avoid the high charges levied by insurance salespeople and financial advisers, an old-fashioned insurance company savings scheme might suit you, especially if you don't want to take too many risks.

"A with-profits scheme offers valuable life protection but the best feature is that the annual bonuses, the `profit' attached each year, cannot be taken away," says Fre Mesbah of BP Sanders, a firm of independent financial advisers. "And you will have a fixed point in time when the policy matures, giving you the proceeds free of tax."

In a with-profits policy, your money is invested in a variety of assets including shares, property, gilts and cash. The insurer makes a conservative assumption about the long-term growth needed to cover the death benefits attached to the policy. This "basic sum assured" is the guaranteed minimum sum you will be paid on maturity or in the case of your death.

In reality, expectations are higher than the 2 or 3 per cent annual growth pencilled into the calculation. If the fund generates bigger returns, the extra is put aside to pay for an annual bonus for all its investors.

Not all the annual profit is shared out. Some is held back to make sure bonuses continue in lean years. But at the end of the contract term investors get a "terminal" bonus, which should reflect the excess profit accumulated over the years.

Traditional with-profits en-dowments are very expensive, largely because most insurers take their charges upfront. A lot of this goes to pay commission to the salesman who sold you the endowment. More go-ahead insurers, including Standard Life, now have their charges spread over the policy's life.

It is also possible to save on charges. Instead of pocketing the commission some advisers levy a flat fee, for example pounds 75 in the case of Chartwell Investment Management. They operate on an execution-only basis, meaning they give no investment advice. Some firms are better at managing with- profits funds than others, and the disparity between good and poor performers can amount to thousands of pounds at maturity. Magazines such as Money Management have regular performance surveys on endowments.

n Contacts: BP Sanders, 01442 876333; Friends Provident, 01722 413366; Standard Life, 0131-245 0178; Chartwell, 01225 321700. To find an independent adviser, call IFA Promotions on 0117-971 1177.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Guru Careers: Investment Writer / Stock Picker

Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

Day In a Page

How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue