To profit, turn on the Tep

Traded endowment policies

The second-hand market in with-profits endowment policies may be more than 150 years old, yet few policyholders have even heard of it. Today the traded endowment policy (Tep) market is only worth between £450m and £470m, which is a drop in the ocean considering that some £1.25bn-worth of endowment policies were surrendered last year.

The second-hand market in with-profits endowment policies may be more than 150 years old, yet few policyholders have even heard of it. Today the traded endowment policy (Tep) market is only worth between £450m and £470m, which is a drop in the ocean considering that some £1.25bn-worth of endowment policies were surrendered last year.

An estimated 750,000 endowments are sold each year, generally alongside interest-only mortgages. They are investment vehicles issued by life assurance companies, which agree to pay a fixed sum plus accumulated profits on an agreed date. This is usually between 10 and 25 years, provided all premiums are paid.

Sometimes, though, policy-holders may wish to cash in their endowment early. Most people tend to surrender their policies to the life insurer, and are penalised for breaking the terms of their initial contract. They receive a sum back but it is generally considerably less than the policy is really worth.

By selling through the Tep market, policyholders get a better price because the endowment is taken over, rather than surrendered, so they are not severely penalised. Rather than surrendering your policy to the insurer you bought it from, you can get returns that are typically 15 per cent higher.

So why doesn't every endow- ment holder consider the second-hand market? "Sometimes it is ignorance that stops policyholders using the Tep market," says Brian Goldstein, managing director of Policy Portfolio, founder of the Tep market. "Many people just don't know that they have another option. Some of the life companies don't advise customers that we even exist."

Policy Portfolio, like other market makers, will come back with an offer for your endowment. "We say we will give [policy holders] more than their insurer offers them if we can; if not, they should go back to the insurer," says Mr Goldstein.

In the Tep market, buyers pay a purchase price for the policy, plus legal fees, and the premiums until the policy expires. When the endowment matures, they receive the full surrender value.

It is an attractive investment for buyers because they acquire a mid-term policy with attaching bonuses, which may give a good return with limited risk. They also don't have to pay hefty commission and admin-istration costs, which come with setting up an endowment policy from scratch.

Market makers provide estimates based on previous history, prevailing market conditions and expectations of future conditions. It can be difficult to know whether estimated maturity proceeds are realistic, as was shown recently when many policy holders received letters suggesting their endowments might fall short of projected value.

Not all endowments are attractive to buyers, either. Only those policies that are "with-profits" - meaning they generate annual bonuses - and have several years left to run are sought by brokers.

Teps can be bought from a broker or through internet auctions. There are several funds available: two from Barclays Global Investors, two from Kleinwort Benson and one from Scottish Value Management.

* Contacts: for a free factsheet, 'Teps and Tax', call Policy Portfolio on 020 8343 4567; www.policyportfolio.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
PROMOTED VIDEO
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
News
i100
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
News
Kenny Ireland, pictured in 2010.
peopleBenidorm actor was just 68
Arts and Entertainment
Preparations begin for Edinburgh Festival 2014
Edinburgh festivalAll the best shows to see at Edinburgh this year
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Financial Analyst - Forecasting - Yorkshire

    £300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

    Business Architect - Bristol - £500 per day

    £500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

    Regulatory Reporting-MI-Bank-Cardiff-£300/day

    £200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices