Key Points
- TEPs have a low risk profile and can help achieve a balanced portfolio.
- Investment can be made in single policies, a portfolio of policies or by purchasing units in collective investment funds, investment trusts or Open Ended Investment Companies (OEICs)
- To go straight to an Investment Enquiry Form,
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- Limited Risk
- Flexibility & Choice
- insurance company
- capital sum to be invested,
- level of premiums to be paid
- preferred maturity dates.
- Selling - On
- Reassurance
- Access to fund management expertise
- Competitive Returns
- Efficient Investment
- Steady Growth
- Inflation Resistance
- Maturity
- Tax Efficiency
- Loan Facility
Provided premiums are maintained, TEPs have a guaranteed minimum value at all times, this being a combination of the Basic Sum Assured and Accrued Bonuses. Once allotted, bonuses cannot be taken away.
TEPs allows investment from £2000, up to hundreds of thousands of pounds. A wide range of TEPs from the top life offices are available, offering choice of:
TEPs can be re-traded at any time prior to maturity, thus making investment in longer dated policies a practical option.
The financial strength of well-known life offices provides reassurance. Investing in a TEP gives holders a stake in established insurance businesses. TEPs are covered by the Policyholders Protection Act 1975. The Investors Compensation Scheme provides limited cover in the event of an authorised firm defaulting. Further information can be obtained on request from the Financial Services Authority.
Investors benefit from life office investment expertise, accumulated over many years.
On the basis of Risk/Return, TEPS have provided very satisfactory returns, comparing favourably to those available from similarly profiled investments, such as medium term gilts. Investments can be geared to increase returns if higher level of risk is acceptable.
Because the original policyholder has paid the set-up costs of a with-profits policy, TEPs can sometimes be acquired at a discount to their underlying value.
With-profits endowments grow steadily in value, thanks to the annual allocation of ‘smoothed’ bonuses. Each year annual, or reversionary, bonuses are declared; in good investment years something is reserved by the life office to add back to the policy in poor investment years; the effect is that the value of a policy grows steadily throughout its life. On the maturity of policies, terminal bonuses may be declared.
A life fund’s investment exposure to a wide range of equities and property can compensate for the effects of inflation.
TEPs mature at a known time. Terminal Bonuses, which can account for 50% of the total maturity value, are added to the Basic Sum Assured and Accrued Bonuses on maturity to make the Total Return.
The payout at maturity is made by the life office without deduction of tax. Most policies are subject to Capital Gains Tax in the hands of the investor. Arrangements can be made to shelter the proceeds from this tax.
TEPs can be used as security against loans, which are offered by the life offices themselves and other lenders.
Investment Risks:
- The life office’s investments many not perform as well as expected, causing a fall in bonus rates, which could result in a lower return than anticipated.
- The life assured (the original policyholder) may die before the policy matures, thus resulting in an earlier payment than expected, which may not suit the investor's tax planning.
Investors considering the purchase of a policy may approach a Market Maker or attend an auction. The auction house provides a catalogue for each sale while the Market Makers periodically produce lists of policies for sale.
The investor decides which policies are of interest and either bids at the auction or arranges to purchase the policy direct from the Market Maker.
Step by step guide to buying a policy:
- Decide on the size and type of policy(ies) that would be suitable for the investment portfolio.
- Obtain up-to-date policy lists from Market Makers.
- Telephone the Investment Department of the Market Maker to check whether the policy is still available
- Confirm your intention to purchase.
- Complete the application form and forward it with a cheque in full payment made payable to the Market Maker.
- They will confirm receipt of your payment and send you a Contract Note together with Compliance and policy information.
- The Market Maker's staff complete the paperwork to legally assign the policy to your client.
- The policy document and title deeds, together with instructions for payment of future premiums are forwarded. An initial enquiry form may be made by completing the on-line form.
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Notes: The return on these investments depends on the profits made by the life office and on its policy as to their distribution (whether on early encashment or in
adverse market conditions or other circumstances). Because these investments may go down in value as well as up, you may not get back the full amount invested. These investments are not suitable for everyone. If you have any doubt whether they are suitable for you, you should obtain expert advice. |
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