Traded Endowment Policy TEP

A Traded Endowment Policy TEP is a with-profits endowment policy that the original policyholder has sold by absolute assignment of all future benefits.

Endowment policies have been among the most popular forms of investment in the UK. But they are also inflexible.

Traded endowment policy is merely a fancy name for second-hand endowment policy. If you have taken out a 25-year policy but after say 15 years you decide you no longer need the long-term savings plan you have two options.

You may either hand the policy back surrender it to the life insurance company who issued it or you may trade it in the second hand market - the TEP market.

If youre thinking of surrendering an endowment policy before the end of its term first get a surrender value from your insurance company and then consider approaching an intermediary who buys and sells these second hand policies.

Life assurance companies sold many endowment policies in the 1970s and 1980s as savings vehicles to repay mortgages at the end of a specified term. However for a variety of reasons many policyholders cash in their policies early - it has been estimated that only some 30 of all endowment policies actually reach maturity. This is not a new phenomenon it has been the case for decades.

While people take out savings vehicles for the long term with the best will in the world circumstances can change and there is often a need for short-term cash. The endowment is an easy target in the average household budget.

In the past it has been the case that around 30 are cancelled in the first three years of their intended lifespan. The 40 that neither last the full term nor get scratched in the first 36 months are either sold or surrendered somewhere along the way.

Surrendering a policy is unlikely to produce a return reflecting the policys full value if only because the terminal bonus paid on maturity usually represents a large chunk of the policys return. In fact policies surrendered early may not even reflect the full value of funds invested owing to high initial charges .

The media has long criticised endowment policies for their high charges and inflexibility and for not bringing the investment returns promised in some cases. Indeed some homebuyers have found this out to their cost. But over the long term they have generally done rather well.

The main problem with endowments is not their longer-term performance - which has been generally excellent - but the returns paid to people who have had to surrender them early.

An alternative option for the policyholder is available either the sale of the policy through a market-maker or the auctioning of the policy through an auctioneer.

In either case the policyholder is likely to realise a higher cash sum than through surrender.The amounts policyholders get back when they surrender policies vary between life companies - basically some are more generous than others.

But the reason the traded endowment policy market exists is because many life companies surrender values do not reflect the full inherent worth of their policies as continuing contracts. The fact that there is a shortfall between the life company surrender value and the policys underlying worth created the opportunity for the TEP market to exist.

In fact while the TEP market as it now exists has only been around for less than a couple of decades one endowment auction house has been in business for more than 150 years.

Policies sold or auctioned are assigned to the investors who purchase them and who then take on the responsibility for the payment of future premiums. When the policy reaches maturity or the life assured dies all the benefits are paid to the investor owning the policy.

If you have an endowment policy you no longer want or need dont just surrender it to your policy provider. You are likely to get a far better return trading the policy through us. Call Moneyextra.coms experts on 0845 145 0145

2009-02-17 00:00:00 © Moneyextra.com