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TheMoveChannel.com | Selling a TEP (Traded Endowment Policy)

A TEP, traded endowment policy, or second hand endowment, is a with-profit endowment policy that has been sold by the original policyholder to another investor before the end of the agreed term of the policy.

Once sold, TEPs are legally assigned to the new owner who takes on the responsibility for the continued payment of future premiums. The life assurance element of the policy is not transferred but remains on the original life assured. When the policy reaches maturity (or the life assured dies) all the benefits are paid to the new owner.

The TEP market has existed since 1843 but has grown enormously in the last ten years for these main reasons:

  • Most importantly of all, the price obtained for a policy on the open market is normally well above the surrender value that would be paid by the life office. Figures from the Association of Policy Market Makers indicating that the average sale price is 15% higher than the surrender value, with some policies fetching as much as a 35% premium.
  • It is this differential between the surrender value and the real value of the policy that creates a low-to-medium risk investment opportunity for the purchaser of such plans.
  • When you purchase a second hand endowment policy, not only has the original policyholder paid all of the initial set up costs, but it has participated in at least five years of reversionary bonuses which cannot be taken away. Add these to the sum assured and you have "underlying guarantees" that is the guaranteed minimum pay out at maturity. The policy will also benefit from participation in future reversionary bonuses and a final terminal bonus.
  • Even when an endowment is underperforming when compared to the growth rate that was assumed at the outset, it can bring a good return for an investor not trying to achieve the same investment target. The performance can also compare favourably with other low risk will be substantially higher as investors become increasingly frustrated with alternative low risk investments such as With Profits Bonds which average only 6-7% pa and even worse, the deposit accounts which average below 3%.

Not all endowments can be traded. For starters, unit linked policies and those linked to pension plans can not be traded on the TEP market. Nor can those policies that have not been in force for more than 5 years or at least a third of the policy term. Furthermore the endowment must have a surrender value in excess of £2,000. If you have a low-cost, full or unitised with profit endowment that meets these criteria, then selling your policy may be a viable option for you.

There are many companies throughout the UK who purchase and re-sell endowments to investors all over the world. The popularity TEPs is growing to such an extent that market makers can't meet the demand. As a result, some market makers are offering the sellers increasingly higher prices for their endowments as well as taking steps to speed up the time taken to complete the transaction.