Traded Endowment Policies
In the first of a series of features and up to date articles, Nick Cosby
of the Acumen Investment Partnership answers your questions on Traded
Endowment Policies.
A traded endowment policy (TEP) is
a life assurance policy which the original policyholder no longer requires
and, instead of surrendering
it, he or she sells it to a market maker in most caves for an amount
greater than the surrender value.
In turn TEP’s are bought as investments offering the prospect
of steady and stable growth in the future.
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It is estimated that over 50% of all policies are surrendered
before maturity. (Source Policy Portfolio plc 28th July 2004) In many
cases investors are willing to pay a higher amount
than the surrender value for these contracts. This gives rise to the
market.
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A market
maker purchases the policy outright for a sum higher than its surrender
value. The premiums continue to be paid by the market maker
under the policy is sold to a new investor.
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It is an auction of endowment policies, where
for each lot the sale is made to the highest bidder. It is customary
to set a reserve price
above the surrender value and below which the policy cannot be sold,
so protecting the vendor’s interest. The auctioneer charges a
fee for his services.
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We will arrange Traded Endowment Policies for our clients normally
on either a commission or fee basis. If commission is taken it will
be disclosed
prior to the purchase or sale proceeding.
The market in TEPs exists for with-profits endowment
and whole of life policies. Generally, policies should have been in
existence for at least
6 years with a minimum surrender value of £2,000. Not all policies
are marketable. Some life companies do not offer good investment potential
while others pay excellent surrender values. There is currently no
market for unit-linked policies.
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If you policy is marketable, you can generally expect to receive between
10% and 15% more than the surrender value although, in some instances,
as much as 50% more has been paid.
(NB These figures are not guaranteed)
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No. Your quotation is supplied free of charge.
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Generally within
24-48 hours of the market maker receiving the information needed to
provide a quotation.
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This depends on the market maker.
In many cases it is valid for 15 days and is conditional on the policy
details supplied being correct and there
having been no change in bonus rates during this period. After this
period the market maker will usually provide you with a revised quote.
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Simply contact us confirming
your acceptance and you will be sent the necessary paperwork for signature.
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It is important that you always seek financial
advice before surrendering or selling an endowment contract. Please note
that by selling or surrendering these contracts you will lose life cover
or other benefits attached to the plan.
Simply to build up a large sum of capital
at a specified time in the future. Their attraction lies in the fact
that, unlike stock market investments
where performance can be very volatile. TEPs offer the potential for
steady and stable growth. They can be used for retirement planning,
school fees planning or any other future capital required.
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You can ask us for a TEPs
stock list from a market maker. When you have chosen a policy simply
contact us to confirm its availability and, if
it is still available, send in your cheque and completed application.
The policy will be reserved for you until these have been received
by the market maker who will then send you contract notes and the policy
documents.
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No. There are no
extra charges involved.
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The basic sum assured and
current accrued bonuses are guaranteed provided you maintain the policy
to maturity.
(NB Refers to annual Bonuses. Future Bonuses are not guaranteed)
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The market maker will
have made sure that the policy is unencumbered by any loans or guarantees.
You will be provided with a deed of assignment
transferring the policy from the market maker to yourself. The life
office will be notified and they will contact you regarding future
premiums.
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The new investor will receive
the proceeds of the policy which include the basic sum assured, current
accrued bonuses, and generally a terminal
bonus.
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The life assured is normally
asked to provide the names of two referees through whom you can check
periodically.
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The policy will form part of your estate. It
can then be continued, surrendered, made paid-up, or sold to a third
party.
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Yes. You can sell the TEP, it’s your property.
