Endowment policyholders considering flogging their poorly performing investments on the open market may find it harder to get a good price in the coming months. Two leading market makers - Beale Dobie and Policy Portfolio - announced last week that they are to pull out of the traded endowment policy (Tep) sector. This is the open market that enables endowment holders to sell their policy ahead of the maturity date to the highest bidder. Usually, they will get a better price than if they had simply surrendered the policy to their insurer.
Investec, the group that owns both Beale Dobie and Policy Portfolio, announced that "in time [they] will withdraw from the market and will no longer trade as Tep market makers". Neither company would make any further comment.
These firms are two of the biggest Tep market makers, and without their help, endowment holders could struggle to get a decent amount of cash before their plans mature. The alternative is to surrender them to their insurer. But they may have to pay exit penalties as high as 20 per cent of the fund's value.
But PolicyPlus, another market maker, takes a more optimistic view and is accelerating its planned expansion in the UK.
"The Tep market is thriving because Teps offer outstanding value to investors," says Jo Bridger, marketing manager at PolicyPlus. "We are still seeing a lot of demand. This isn't good news for investors, as they have to pay higher prices, but it's good news for policyholders."
She believes other firms will step in to fill the gap left by Beale Dobie and Policy Portfolio.
The poor performance of endowment policies in recent years has contributed to the growth in the Tep market. It is now worth millions of pounds a year. The Association of Policy Market Makers (APMM) says policyholders can get, on average, 10 to 15 per cent more for their policy on the open market than they would if they surrendered it to their insurer.
Only one third of such policies reach maturity, according to the APMM, with 30 per cent cancelled in the first few years and 40 per cent surrendered or sold mid-term. Market makers provide a bridge between policyholders and investors, checking details of plans offered for sale and then selling them on.
The main attraction of Teps is their locked-in value, which is the basic sum assured together with the attached bonuses. Investors in Teps know they are going to get back their capital, guaranteed, on a certain date.
The Tep market really took off in 2002 when the Financial Services Authority ruled that insurers must inform those surrendering an endowment that they have the option of selling on the open market. As a result, the number of enquiries from people interested in selling their policies rocketed.
Not all policies are suitable for the Tep market. Your plan needs to be issued by an established insurance company, be a traditional with-profits endowment, have run for at least 25 per cent of its term (a minimum of seven years) and have a surrender value of at least £2,000.
If you are considering cashing in your policy, contact your insurer and ask what the surrender value is. Then, if the policy complies with the above criteria, contact a market maker to find out if it can better this.
Alternatively, the APMM will obtain three quotes for your policy on your behalf from different market makers. There is no commitment to accept one of these and the service is free.
The market maker will ask for your policy details, surrender valuation and the latest bonus notice available. Once it has checked this, you will receive a quote within two working days. If there is no demand for your policy, the market maker won't be able to offer more than your insurer's surrender value. But if it does offer a better price, you will usually have two weeks to decide whether to accept this, and you should get a cheque as soon as a buyer is found.
Market makers are execution only, so can't give advice. If you are unsure what to do with your endowment policy, contact an independent financial adviser.
Contact: Association of Policy Market Makers, 020 7739 3949 or www.apmm.orgReuse content