Traded Endowment Policies (TEPs) - An Attractive Alternative Investment
What are Traded
Endowment policies are life insurance contracts that pay a lump
sum after a specified term (often known as on 'maturity' or on
death). Typical maturities are between 10 and 25 years
and up to a certain age limit.
Endowments can be
cashed in early (or surrendered) and the holder then receives the
surrender value which is determined by the insurance company.
Traded endowment policies allow beneficial policy ownership to be
transferred from the original policy owner (the vendor) to the
secondary investor (the purchaser) for a price in excess of the
surrender value quoted by the Life Assurance company to the
The investment return for a TEP investor is the
excess in maturity value over the acquisition price, premiums paid
and any expenses. Investors buy the legal rights to the policy from
original policyholders and subsequently pay the due premiums until
making a return by collecting the entire proceeds upon maturity of
the policy or the earlier death of the life insured.
In addition to delivering stable investor returns
TEPs offer other benefits;
Capital Protection: The basic
sum assured and annual reversionary bonuses allocated to the policy
at the time of purchase are guaranteed by the life insurance
company* and backed by ring-fenced reserves. This provides a high
degree of capital protection or locked-in value.
*Provided premium payments are maintained to
Low Volatility: TEP investments
are less volatile than a comparative investment in a single asset
class because they are backed by the strength of leading life
insurance companies and offer access to a broad range of asset
classes. With-profits funds typically diversify by investing in a
broad mix of UK and overseas equities, gilt-edged and other fixed
interest securities and in commercial property.
Attractive Returns: TEP
investments offer projected attractive total returns above
Policies can be purchased in the secondary market at a discount to
the underlying asset value. This is due to the primary policyholder
having already absorbed most of the costs associated with the
set-up of the policy.
Diversified Counterparty Risk:
TEPs sourced from an extensive number of life insurance companies
diversifies concentration risk and provides access to a wider range
of underlying assets and investment strategies.
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SL and TEPs: Solid Foundations.
Since launch in 1990, SL has been a major
influence on the development of the UK TEP market. Credited with a
number of TEP industry fund 'firsts', SL was a founder member of
the APMM: an industry trade body created in 1992 to promote
awareness and understanding of the UK TEP market ensuring that the
highest professional standards are maintained by members as
outlined in the Association's Practice Guidelines.
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