Endowments are regular premium policies which combine investments with life cover and are sometimes used to repay interest-only mortgages. Endowments are offered by life assurance companies, have a fixed term and usually require you to pay a fixed premium on a regular basis.

Some of your premium is used to buy life cover (so if you die before the end of the term the policy pays out a death benefit) and the remainder of the premium is invested. The amount of life cover will depend upon the premium you pay, your age and sex, and the length of the policy.

Many life assurance companies and friendly societies offer a with-profits fund. If you keep paying the premiums, these plans offer a guaranteed minimum value at maturity. If investments do well then they will add a bonus to the guaranteed minimum amount. They may also add a final bonus at the end of the policy term. You can also often choose from a range of other funds which can invest in, for example, UK and overseas shares, fixed interest securities, property and cash.

Maximum investment plans tend to offer a wider range of funds than other types of endowment. Maximum investment plans may also offer a way of investing in funds managed by other companies, but this may lead to higher charges.

If the policy has a planned duration of at least ten years and is held until the end of the term, the value of the policy will be paid to you as a lump sum, generally without any further tax liability.

In some other cases you may have to pay income tax at maturity if you are a higher-rate taxpayer (or close to being one). For example if you stop an endowment early, you may have to pay tax on any capital growth.

If you do not maintain premiums into a friendly society savings plan until the end of the term, you may have to pay some tax.