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
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
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
In summary TEPs
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