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Everything you need to know about endowments

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Endowments are investment policies that can include life insurance. If you have one already, there are several ways you can get a payout. Here is everything you need to know about what they are, how they work, and how they are taxed.
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Investing can put your capital at risk. You may get back less than you originally invested.

Endowments are taken out for a set period of time and the money you pay into one is then invested until it reaches a target amount, set by you. When an endowment matures, you can either take the money, keep it where it is, or open a new investment. 

There are different types to choose from, depending on the reasons for having one, and they can cover things like life insurance or a mortgage lump sum.

Although endowments are investment products, they are sold by life insurance companies. If you die before the end of the term, the money will go to a named beneficiary, if you have one.

Make the most of your tax-free ISA.

What is an endowment policy?

An endowment policy is a long-term investment, which you buy from a life insurance company. 

If you’ve got one, everything you need to know about endowment policies is explained in this guide.

How do endowments work?

If you take out an endowment policy, you’ll pay into it for a period of between 10-25 years. When the endowment matures, you’ll usually get a cash lump sum. Alternatively, you’ll receive the money to pay off an interest-only mortgage. 

You don’t have to wait until the policy matures to get your cash either, some people decide to sell their endowment policy before it matures. In this guide, we look at how this works and explore whether you should sell it, how to sell it, and what tax issues you could face.

Should you sell your endowment?

Selling your endowment policy gets you a cash lump sum right away. However, although you could get more money than if you simply cancelled the policy, you’re likely to get less than if you held out until it matures. 

If you sell your endowment, you’ll also lose any associated life insurance policy, and this means you forgo any future windfall payments from the life office. 

Pros and cons of selling your endowment

Everything in life comes with pros and cons and it’s important to weigh these up before you sign on the dotted line. Here are some of the advantages and disadvantages of selling your endowment policy before it matures.


  • You’re likely to get more money than if you just cancelled it
  • You’ll stop paying money into it, so you’ll have extra funds available to you each month
  • If you sell it for enough, you could pay off your mortgage, or invest in something better.


  • You’re likely to get less than if you waited for it to mature
  • You might find that you’re unable to sell your policy
  • If you decide to pay off your mortgage in one go with the money you earn, you could face mortgage repayment fees
  • You’ll need financial advice.

How selling your endowment works

There are several reasons you might wish to sell your endowment to a third party before its maturity date. For example, perhaps your statement shows it’s worth less than you thought.

Or, perhaps, your circumstances have changed, and you need the money sooner, and can’t wait until it matures. By selling it, you could get a lump sum within a few weeks, whereas you may have years to wait until your policy matures. 

You don’t have to sell your endowment back to the policy's provider – you can sell it to another person or company on the Traded Endowment Policies (TEP) market. The TEP market lets you sell your endowment policy to a person or company that’s looking to buy one as an investment. 

You might sell it to a traded endowment specialist, which is a company that buys endowments to sell on to other investors.

Whoever buys the policy from you then owns it. That means when it does mature, they’ll get the payout, and not you. They’ll also have to take over paying the monthly premiums, relieving you of this expense.

Don’t forget, you’ll get more by selling your endowment to a third party than you would if you asked your provider to cancel it. You’ll usually make 5% to 7% more than if you cancel it, which is also known as ‘surrendering’. 

The best decision for you will depend on your financial circumstances, how much you need the money within the endowment and its value. It’s not something to make a decision about without first carefully planning and researching all the options and outcomes.

Are there alternatives to selling your endowment?

Yes, you don’t have to sell it, it’s your money and your call to make. You’ll find several alternative options below.

Wait until it matures

Endowment policies are usually sold as an investment. At the end of the term, people often hope to pay off their mortgage and be left with an extra lump sum. You’ll have to carry on making your monthly premium payments until maturity if you choose this option.

Sometimes, waiting until your endowment matures is the most sensible financial option as you’ll get the biggest payout. But many endowments have made smaller profits than expected, and this can be disappointing. 

You can check with your provider how much your endowment is likely to pay out when it matures. If it’s not as much as you want, you could stop paying into it. You can then cancel or sell it and put your funds in a more profitable investment.

Or, you could pay off a part of your mortgage if you won’t incur hefty early repayment fees by doing so.

Stop making payments

You may be able to keep your policy until it matures, but stop making payments into it. If the premiums are high, but the final payout is going to be lower than expected, this could be an option for you.

But it’s important to note that, by stopping payments, you’ll definitely receive less when it matures. Plus, if your policy includes life insurance, this could become invalid if you stop making payments. In some cases, the amount the life insurance pays out could be reduced.

Stopping payments is known as making your policy ‘paid up’. Some policies don’t let you do this. Check with your provider to see if it’s allowed with your endowment. 

Surrender your endowment

If you ask your provider to cancel your policy before it matures, it’s known as surrendering it. If you do this, your provider pays you a lump sum now instead of at the maturity date.

You’ll usually get much less than if you waited for your policy to mature. Surrendering your policy could also come with extra fees and penalties.

In the worst case, this ‘market value adjustment’ could mean you get back less than what you’ve paid in over the years if you surrender. As you get closer to the maturity date, the penalties may become smaller, but that’s not the case for all policies. 

If you don’t want to keep it until maturity, you can avoid surrender fees and usually get more for your endowment if you sell it to a third party instead of surrendering it.

Checking how much you can get

You can get free quotes for selling your endowment. By doing this, you’re not obliged to go through with the sale – it’s just research. It will give you an idea of how much money you could make by selling, and you can compare this with the final amount you would get if you kept it until maturity.

You should get quotes from several companies if you’re thinking about this. Compare these quotes with how much you’d get if:

  • You surrendered your endowment: Make sure the amount they give you for cancelling your policy includes the fees you’ll have to pay your provider.

  • You kept your endowment until maturity: Don’t forget to subtract the cost of the premiums you will pay until it matures.

  • You keep your endowment but stop making payments: If you make your endowment paid up, you don’t need to consider the cost of ongoing payments but keep in mind the fact that the insurance element may be stopped

You can find out the surrender value and maturity value by checking your most recent endowment statement or asking your provider.

Working out how much your endowment will pay with each option can help you decide which is best.

Is the maturity value guaranteed?

When you ask for the maturity value, remember the amount given could be estimated.

Some policies offer a terminal bonus. It’s paid when the endowment matures and can be around half an endowment's final value. But the amount depends on how well the investment performs. It’s never guaranteed.

Other policies include guaranteed annual bonuses, which pay an agreed amount every year. This could be, for example, around 4%.

What to check before you sell

Before you sell your policy, you’ll have to gather all the details about it and have them ready. Here’s what to do.

Find out who is your endowment provider

You’ll need to find out which insurance company provides your endowment. There are several ways to check this. Check your:

  • Paperwork: If you still have the documents you were given when you took out your endowment, check which company you used. In some cases, the company may have changed, but you should have been told this well in advance and there should be details about the new company in your statements.

  • Bank statement: You usually have to make a regular payment into an endowment. So your statement will show a direct debit to the company each month.

  • Mortgage company's records: Speak to your mortgage lender. They might be able to give you details if you took out the endowment alongside your mortgage.

Get the details of your endowment policy


This information should be included in your policy's annual statement. If you can’t find it or something’s missing, ask your provider.

If you took it out with a mortgage, it should finish at the same time as your mortgage.

Your statement should tell you how much the endowment is likely to pay out when it matures. 

Your statement may also give the surrender value, in case you cancel the policy. But this amount changes. It’s therefore likely to have changed since your statement was sent, so ask your provider for a current surrender value.

You have to give the surrender value and date of surrender value when you sell your endowment to another company. Most companies only accept this if the date is within the last 30 days.

Check which companies can buy your policy

Once you’ve got details of your policy, you can check which companies are able to buy it.

Traded endowment companies have rules about what types of policy they’re willing to buy. 

Many impose restrictions depending on:

Consider your financial circumstances carefully before making any decisions. You may also want to seek financial advice, although you’ll need to pay for this.

Asking yourself a few questions before deciding what to do with your endowment policy can be helpful:

Do you need the money right now?

Selling your endowment often means you’ll get less than if you waited until it matured. But if you need the funds urgently, for example, to pay off a debt, then selling your endowment could help you out of a tight spot.

Can you afford to pay back your mortgage?

Selling your endowment could make you enough money to pay off your mortgage balance. If you took out your endowment to repay your mortgage balance at the end of its term, make sure you find a way to do this if you’re not keeping your endowment.

If your endowment lump sum isn’t actually enough to repay your entire mortgage then you could use it to pay off part of your mortgage instead. You could then switch from an interest-only mortgage to a repayment mortgage for the remainder of the balance owed. This would replace your interest-only mortgage and will mean your balance is still paid off by the end of the mortgage term.

Be aware that switching to a repayment mortgage could cost you more each month. But paying off part of your mortgage and no longer paying into your endowment could mean it works out cheaper overall.

Will you lose your life insurance?

Some endowment policies include life insurance. If you sell your policy, you’ll lose the life insurance cover.

This means that if you died, your beneficiary couldn’t make a claim. But the person or company that bought your policy could.

Life insurance can pay off a mortgage or other large debt, or give your family a lump sum if you die. If you still want this cover, you could:

Get advice

The companies that buy endowments from people don’t usually give you financial advice. They’re known as ‘execution only’. 

This means you need to decide yourself whether you want to sell. Alternatively, you can contact a financial advisor and talk to someone about it.

An advisor can help you decide if you should sell. They’ll also work out the best way to use the money you get for your endowment, although you will have to pay for this advice.

What to do if you decide to sell

If you do decide to go ahead and sell your endowment policy, there are a few things to think about. 

Decide what to use the money for

Before you sell your endowment, work out what to use the money for. You could:

  • Pay off your mortgage: If your endowment was taken out with your mortgage, you could use the lump sum to pay all or part of it off. Here are the benefits, risks and costs of mortgage overpayments.

  • Invest your lump sum: You may be able to grow your funds by investing them in the stock market or your pension. Here’s how to decide how to use your lump sum.

  • Add to your savings: You could put the money away into a savings account earning interest.

  • Pay off other debts: If you owe money on a loan or credit card, clearing the balance could save you more money than you could make from many investments.

  • Gift the money to someone else: If you’d like to pass some of the money on to your children or someone else, think about how tax works on financial gifts.

Find a buyer

You can use a comparison tool to find the best deal when you sell your endowment.

Select the company that sold you your endowment and enter the details of your policy. You’ll then get quotes from traded endowment specialists who would be interested in buying it.

These quotes let you know how much they’ll pay you for your policy. The offers expire after a set time, such as seven days.

Choose the best deal

Compare the amount offered by each company with the surrender value your original provider gave you.

Some TEP companies may increase their offer if you let them know that another company has offered you more.

Make sure the quotes are more than the surrender value and check which one gives you the most for your endowment.

You can then decide if you should sell your endowment. You should also check: How much does it cost to sell?

Here’s everything you need to know before you sell your endowment.

How long does selling an endowment take?

It takes three weeks, on average, to sell your endowment. But it does depend on which company buys it.

Brokers act as a middleman to sell your policy directly to an investor. This takes longer because you’ll have to wait until they find someone who wants to buy it.

Other companies pay you for your policy immediately. These companies hold a range of different policies that they can sell to investors later.

How to complete the sale

Let the company know you’ve accepted the offer and send back any requested paperwork. The firm will then contact your policy provider to transfer your endowment.

You’ll be paid by cheque or bank transfer once the paperwork is complete and the policy is no longer in your name.

Your TEP buyer will let you know the date you can stop making monthly payments to your endowment policy.

What tax issues could I expect when selling an endowment policy?

When an investor disposes of a traded endowment policy, tax becomes payable. This is true regardless of why it’s being disposed of. It doesn’t matter whether it’s as a result of a death claim, the policy maturing or the surrender and resale of the policy via the TEP market.

The tax position at the maturity of a TEP, for UK residents, depends on whether the policy is qualifying or non-qualifying. The specifics of the policy determine whether it’s approved as a 'qualifying' one by HMRC.

Qualifying policies

These policies aren’t subject to Income Tax. But, under the Taxation of Chargeable Gains Act 1992, the receipt of a benefit by the investor gives rise to a disposal for Capital Gains Tax purposes. This is true whether it’s due to death, maturity or surrender and subsequent sale. This means Capital Gains Tax is due if the proceeds exceed the tax-free allowance at maturity, after the purchase price, premiums and tapering relief are deducted.

Non-qualifying policies

Higher rate taxpayers

The profit (chargeable event) is subject to Income Tax at the marginal rate. This is the difference between higher (40%) and basic rate (20%) tax. For 2021/22, this is 40%-20% = 20% marginal rate. Tax is applicable to the maturity figure, less all premiums paid since the policy began.

Basic rate taxpayers

The proceeds are tax-free for basic rate taxpayers. Marginally higher-rate taxpayers will probably have to pay some tax. But they will benefit from a complex mitigation opportunity known as ‘top slicing’.

In simple terms 'top slicing' allows the gain to be divided by the number of tax years the investment’s been held. This figure is then added to your taxable income for the year in which the policy matured. Depending on where the ‘slice’ straddles various tax bands, a proportional tax rate is applied to the whole real gain.

Be aware that this is a truncated definition of ‘top slicing’ and you’ll need to discuss this complex matter with your accountant.

Making your TEP more tax efficient

You may be able to offset Capital Gains Tax with one of the following approaches:

  • Purchase the TEP in two names so the tax-free gain is higher.

  • Rather than purchasing one larger TEP, it may be more tax efficient to purchase several smaller TEPs. Go for ones with maturity dates spanning different tax years.

TEPs are recognised by the Pensions Schemes Office. This means they’re permitted investments for Small Self-Administered Schemes and Self-Invested Pension Plans. Within these environments, they attract no tax upon disposal.

For overseas investors, gross returns on a TEP are subject to the tax laws of the country in which you’re resident at the time of disposal. Further information on Capital Gains Tax can be found at the GOV.UK website.

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