Why Endowments are Sold ::

According to some statistics a staggering 75 per cent of mortgage endowments are not carried through to maturity by the original life assured, because policies are either surrendered to the life company, lapsed or traded. Policies are mainly sold for personal reasons, like change of mortgage, divorce etc.

Life companies are often accused of offering poor returns when policies are surrendered, especially during the early stages of a policy term. However, it has to be borne in mind, that Life Companies not only have to recover the often substantial set-up costs, they also have to fulfil their obligation to give existing clients the best possible return and therefore want to award those policyholders who keep their contract for the full term, as originally planned. Therefore it is not surprising that selling a policy rather than surrendering it has become a very attractive option for those people wishing to discontinue with their policies, bearing in mind that the sale price can be as much as 40% above the surrender value offered by the life company.

In fact under FSA rules life companies are obliged to inform every policyholder who wants to surrender his policy that it might be more advantages to sell their policy.

Who buys TEPs and why?

Around 50 per cent of TEPs are bought from investors outside the UK, in particular from UK expatriates and foreign nationals mainly in Germany, Switzerland, Austria and the Far East.

It is estimated that an estimated £400 Million worth of Endowment Policies were bought and sold in 2004. Various large investment houses in Germany have shown considerable interest in buying Endowment polices for their funds for an estimated total of £300 Million in 2004 alone increasing the total demand to about £700 Million.

Over the years TEPs have proven to be a safe and lucrative alternative to traditional investments. Reasons for the attraction:

Wide selection of long established life companies
Many of UK’s life companies have excellent Standard & Poors rating
Strong Performance history
Existing guarantees
Attractive returns in a low risk investment environment
Legal assignment of policies through a firm of solicitors
Protection through the Financial Services Compensation Scheme (FSCS)

Why would someone want to buy such an endowment policy?

It’s expectation. Most endowment with profits policies have mainly been taken out as a savings vehicle expecting to pay a mortgage off or to have a certain lump sum available at a specific date. In most cases projections were made at outset assuming certain growth rates. In many cases these growth rates have not been achieved and therefore endowments have gained a reputation for bad performance.

The purchaser of such a policy has a different outlook and expectation of the future performance of his endowment policy.

Firstly he does not start from scratch. The policy he purchases already has histories and has accumulated certain values. He knows the surrender value, the inner or guaranteed value, i.e. sum assured and accumulated bonuses – this being the guaranteed payout at maturity as long as all premiums have been paid. He will also know what the maturity value and ADR Percentage return will be at today’s bonus rates. In other words, if bonus rates will not change during the remaining term the payout will be exactly as forecast. Although it will be likely that future bonus rates will change and therefore affect the maturity value positively or negatively the investor can predict the future maturity by revaluing the policy every time new bonus rates are announced thus being much more aware of how the policy is performing.

Advantages of Selling and/or Buying Endowments

In the past TEPs have produced very good investment returns in what is described as a low risk investment environment. The growth of a policy depends on annual bonuses, which, once attached to the policy, can provide the investor with considerable guarantees. It is those guarantees that offer an excellent platform for future growth. Since life companies aim for even growth during the term of a policy, any surplus accumulated is normally paid out in the form of a terminal bonus at maturity. Consequently, if the policy is carried through to maturity by the new owner, he will, in addition to the annual bonuses, benefit from the terminal bonus, which, although not guaranteed, can be quite substantial.

Both the vendor and the purchaser will benefit from the transaction. While the vendor will get more than the surrender value offered by the life company, the purchaser will take over the accumulated guarantees and will benefit from all future bonuses, including the terminal bonus, as long as premium payments are maintained.

In order to guarantee a fair pricing structure prices of TEPs are constantly adjusted to current bonus rates and market condition.

Whether you are using our maturity/shortfall check service or are considering selling your endowment, EndowmentCheck will always benefit the with profits policyholder, because it puts you in control.

Genuine Testimonials:

"After saving me £3,600 in premiums - Endowment Check proved to be a good investment."