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Traded Endowment Policies (TEPs) - An Attractive Alternative Investment

What are Traded Endowment Policies?
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 vendor.

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 maturity.

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 risk-free rates.

Discounted Prices:  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.

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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