What are Traded Endowment Policies TEPs?

A traded endowment policy, or "TEP," is a policy which has been sold by the original policyholder to another investor before the end of the agreed term of the policy - otherwise known as the "set maturity date".

The policyholder may have any one of many reasons why he or she does not wish to continue the  with-profits endowment. Typically, their circumstances could be changed by a new mortgage arrangement when they move house. Or they could be carrying out a financial rearrangement - perhaps because of a divorce or news such as a legacy.

Low Surrender Values
Each person's reason is unique. But all face the same dilemma: if they try to recoup their investment in what was the traditional way - by "surrendering" their policy to the life assurance company - they receive poor value.

They suffer what the life assurance industry calls "early surrender penalties" - which amount to charges deducted from the current value of the investment. The reason life assurance companies give for early surrender  penalties is that they calculate their charges on the assumption that the policyholder will maintain the policy for the agreed term. A high proportion of the company's costs are incurred when the policy is first set up, though the charges to the policyholder are then spread over the life of the policy.

Average Increase of 14%
What this means is that the surrender value offered by the life assurance company may well be much less than if the policy is sold-on - "traded" - to another investor. The gap on average is 14% but could be as high as 50%*.

This makes selling-on the policy a very attractive solution for policyholders. On the other side of the equation, purchasers are able to acquire policies "in mid-term", with annual bonuses already attached and at a price likely to give them an attractive return with limited risk.

So sellers and buyers have a strong community of interest in having a second hand market for with-profits endowments.

Endowment Trading Since 1843
A market in traded endowment policies, or TEPs, has existed since 1843. It was a tiny market until relatively recently.  Subsequently, between 1989 and today, the TEP market has rocketed in turnover from £5 million to more than £500 million. Now the internet is transforming the TEP market for sellers, buyers and market makers alike by making the whole process quicker, simpler and more transparent.

*Source: TEP Exchange 16/02/2005

How to Sell Your Policy >>

Markham Associates, Riverside Studios, Mill Lane, Dronfield, Derbyshire S18 2XL. Markham Associates is an appointed representative of Sesame Ltd which is authorised and regulated by the Financial Services Authority. The advice and/or guidance contained within this web site is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.   Information on this site does not constitute personalised advice.  Always consult a professional independent financial adviser before taking any action.