What are TEP's
?
Traded Endowment Policies
or TEPs are old, second hand with-profits endowment
policies 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.
Traded Endowments and TEPs
explained
A with profit endowment
policy run and managed by a life assurance company
pays a guaranteed sum at the end of a fixed term
called the amount assured. This is determined by
contract providing that the premiums have been
paid.
The final amount
will include any profits accumulated during
investment. These profits are declared annually and
are paid to the assured person when the contract is
finished.
In the event of
death by the policy holder, the money will be paid
directly to the policy holders estate. (Next of
kin).
The policy premiums
are normally paid for monthly. The life assurance
companies use most of this money to invest and then
share the profits with their policy holders each
year. In effect, the policy holder is taking a
share of the life assurance companies profits from
wise investments. Annual bonuses and terminal bonuses are therefore added to the basic sum assured.
See Endowment Bonuses explained
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