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Traded Endowments
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Buying Traded Endowments


When considering a traded endowment policy, it is important to establish ;

  1. The amount you wish to spend on your investment.
  2. How long you wish the investment for and when it will mature.
  3. The premimum you will be paying each month
  4. Taxation. There are ways in which you can save money by sometimes buying multiple policies that mature each year

On purchase, the policy is legally signed over to you via a sales agreement and "Absolute Deed Of Assignment". The life assurance company who the policy is held with will then confirm you as the new owner. There are benefits from investing in endowment policies such as guaranteed return on investment and the fact that if you buy a policy in mid term, the set up fees have been mostly paid.

Buying a Traded Endowment Policy is easy.

First determine your investment parameters - the lump sum you wish to invest, the future premium levels and the investment term. You may wish to purchase a series of policies to mature in different tax years or you may wish to concentrate on mutual life offices or those with large 'orphan assets', which may be distributed at some future point.

Surrenda-link will assist you in selecting the most suitable policies from those available from the various market makers.

Once you have decided to buy the market maker will supply a contract note and once payment has been made a Deed of Assignment will be prepared to transfer all rights and benefits to you. The Assignment will be registered with the Life Office confirming the new policy owner and all documents will be forwarded to you in due course.

Future premiums are normally collected by direct debit, but in some circumstances it is possible to commute all future premiums as a lump sum payment.

If you know your requirements please proceed to our forms - should you prefer to discuss your requirements in more detail then either telephone Surrenda-link on 0800 919 021 or fill our short form and Surrenda-link will be pleased to consider your particular requirement.

 
Phone buying a second hand endowment policy Surrenda-link 0800 919021
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History of Teps

The market in second-hand traditional with-profit endowment policies was until recently conducted through an auction house.

In the late 1980's a number of Market Makers were established who have made this specialised area of investment more accessible to the general public and since then we have seen an increase in turnover from about £6 million per annum in 1988 to around £500 million per annum in the year 2000. This phenomenal increase in turnover has been brought about by the very strong demand for Traded Endowment Policies (TEPs) not only from UK and offshore individual investors but also from pension funds, specialist investment trusts and offshore investment funds.

The market exists because the majority of people who take out endowment policies do not hold them to maturity - many are surrendered in the very early years before acquiring a surrender value. Most are surrendered or sold later by the original policy owners because of changing circumstances; alterations to mortgage arrangements or divorce are two of the main reasons. As more of these policyholders become aware that they may achieve a higher price selling their policy on the second-hand market, rather than surrendering it back to the insurance company, the number of policies available for purchase has increased dramatically over the last few years.

There would not be a second-hand market in traditional with-profit policies if there were not as many people wishing to buy policies as there are people wishing to sell policies. But the surender valuation offered by fund managers can be bettered by these people wish ing to buy. There is therefore an opportunity to trade the endowments and an industry has grown around this idea of supplying improved investor value.

Why buy a TEP ?

A Traded Endowment Policy (TEP) is a with-profits endowment policy, which the original owner has sold in mid-term.

TEPs are legally assigned to investors who pay the purchase price and take over the payment of future premiums. The life assurance cover remains on the original life/lives assured, but all policy benefits on maturity or, an earlier life assurance payout, are the property of the new owner.

As TEPs are purchased mid-term the policy already has a guaranteed value made up of the 'Basic Sum Assured' and 'Bonuses Attaching' and the initial charges have all been paid by the original policyholder.

The Basic Sum Assured remains constant throughout the term of the policy and is paid on maturity or earlier if the original life assured dies. In addition bonuses are added to the policy every year and once added they cannot be reduced or taken away. The existing annual (or reversionary) bonuses together with the basic sum assured when the policy is purchased constitute the guaranteed value which is often higher than the purchase price of the TEP, meaning that, provided the policy is kept through to maturity, the new purchaser cannot suffer a financial loss.

On maturity (or earlier death of the original life assured), normally, a Terminal Bonus is paid in addition to the basic sum assured and existing reversionary bonuses. Terminal bonuses can be very substantial, and quite often make up more than 50% of the total maturity value, particularly on longer-term policies.

In summary TEPs are:

Low Risk - A significant proportion of the value of the policy is 'locked-in' through the basic sum assured and attaching bonuses, making TEPs a more secure form of investment than others such as equities or property which provide no guarantees. Inflation Resistant - The Life Office's investment exposure to equities and property within the with-profit fund helps offset the effects of inflation.

Access to Investment Management Expertise - Investors in TEPs are capitalising on the Life Office's investment expertise accumulated over many years.

Smoothing - Conventional with-profit policies benefit from the 'smoothing' process that has always been one of the main attractions of the 'with-profit' principle. Each year bonuses are declared and the Life Office actuaries adjust the levels of bonus to take account of the fluctuating investment returns. In determining bonus rates, some of the investment profits achieved during good economic times are held in reserve to help maintain bonus levels during times of economic weakness. The result for policyholders is that, over the life of a policy, maturity payouts reflect the returns achieved on the underlying investments within the with-profits fund, despite short-term fluctuations in investment conditions.

Flexibility - TEPs are very flexible. Policies can be selected with a wide range of maturity dates to suit an investor's specific requirements. Investors are not tied-in as policies can normally be re-traded at any time.

Competitive Returns - Because the initial set-up costs have already been paid by the original policyholder, policies can sometimes be acquired at a discount to the underlying guaranteed value, enhancing the overall rate of return to the investor. Currently rates of return, which are all based on the current levels of bonus* for the particular insurance company, vary between 8.5% and 14% p.a., depending on the remaining term, and with careful planning it is often possible to achieve these returns net of tax.

Windfalls - In addition to attractive low risk returns there is sometimes the possibility of additional benefits from demutualisation payments from some Life Offices and also 'orphan asset distributions'. Sometimes referred to us Carpetbagging or "action by carpetbaggers".

* Levels of annual and terminal bonuses are not guaranteed and can go down as well as up. Past performance is no guarantee of future performance. TEPs are normally medium to long-term investments and if surrendered or re-traded in the early years it is possible for a loss to be made.

Summary of additional reasons to buy.

There are all sorts of reasons for investors to buy TEPs:

  • Retirement Planning - either within an existing pension fund or as an addition to existing pension arrangements. TEPs are permitted investments for Small Self Administered Schemes (SSAS's) and Self Invested Personal Pensions (SIPP's).
  • As a low risk investment as part of a balanced portfolio.
  • As a regular savings vehicle for specific future capital needs, such as, weddings, school or university funding, or a special anniversary holiday.
  • As a gift - with possible tax advantages.
  • As an investment within an existing trust. Corporate Treasury - an attractive alternative to long term deposits.
  • To repay loans or mortgages.
  • With the correct advice it is possible that the proceeds of maturing policies can be tax-free*.



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