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Purchased TEPs are legally assigned to new owners 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.