by Alvin
Photo Credit: ifindkarmaHave you heard of 2nd hand insurance policies – Traded Endowment Policies (TEP)?
Here is the elaboration from Wikipedia:”Traded endowment policies (TEPs) or second hand endowment policies (SHEPs) are traditional with-profits endowments that have been sold to a new owner part way through their term. The TEP market enables buyers (investors) to buy unwanted endowment policies for more than the surrender value offered by the insurance company. Investors will pay more than the surrender value because the policy has greater value if it is kept in force than if it is terminated early.
When a policy is sold, all beneficial rights on the policy are transferred to the new owner. The new owner takes on responsibility for future premium payments and collects the maturity value when the policy matures or the death benefit when the original life assured dies. Policyholders who sell their policies, no longer benefit from the life cover and should consider whether to take out alternative cover.
The TEP market deals exclusively with Traditional With Profits policies. The easiest way of determining whether an endowment policy is in this category is to check to see whether an it mentions units, indicating it is a Unitised With Profits or Unit Linked policy, if bonuses are in sterling and there is no mention of units then it is probably a traditional With Profits. The other types of policies – “Unit Linked” and “Unitised With Profits” have a performance factor which is dependent directly on current investment market conditions. These are not tradable as the guarantees on the policy are much lower and there is no gap between the surrender value and the market value.”
In an article by Mr Dennis Ng from HousingLoanSG.com, he reckoned “it is actually safer to invest in Traded Endowment than buying a Property in Singapore”
I have posted several questions to Mr Dennis Ng which would be able to help you understand TEPs better and hope that they may fit your financial needs or investment portfolio perfectly.
1) Are TEPs whole life policies or investment linked policies?Neither. TEPs are Traded Endowment Policies. They are basically UK Endowment Policies bought from the secondary market in U.K.
2) When one purchases a TEP and take over the ownership, will he/she enjoy the sum assured stated in the policy if death happens to him/her?Nope, the insured remains the original person. You are the owner of the policy and enjoy the maturity value of the policy upon maturity.
3) Currently, only UK TEPs are available in Singapore, are there any other countries that offer as well?
I only trust UK TEPs because UK has very strong regulation and protection on Endowment policies. TEPs are highly regulated in UK to eliminate any risks of fraud. In the worst case scenario of the collapse of a UK Insurer, you as the investor is protected under UK Financial Services Compensation Scheme, which guarantee 90% of the Cash Value of the policy. Which means your maximum downside is only 10% of the Cash Value of the policy.
4) How do I go about it investing in a TEP? What is the typical process?
You buy from the UK Traded Endowment Market. The entire process is actually done by UK lawyer to ensure the whole process is legal and investors’ interests are protected, very similar to a property transaction.
5) What are the cost of a TEP? E.g. sales charges, commissions, or even yearly administration fees.
No commissions payable by investor. Any fees, including legal fees and commissions are borne by the seller of the policy (the original insured). No yearly administration fee. After you invested into a UK Traded Endowment policy, each year, you pay the annual premiums to UK Insurer directly.
6) Are there many types of TEPs to choose from besides years to maturity?
they are all Reversionary Endowment Policies. You can choose from as short as 4 years to maturity to as long as 20 years to maturity.
7) What is the estimated ROI in TEPs as compared to someone buying an endowment policy in Singapore?
Annual returns is 5% to 8%, compared to 3% to 4% for S$ Endowment plan.
Currently, UK Sterling Pounds is trading at 20 year low against S$. Another reason why investing into UK Traded Endowment policies might be a good idea now.
If you are not convinced, you can refer to 12 Reasons Why TEPs are Attractive.You can invest in TEP in Singapore through TEP Pte Ltd. Find out more by calling 6883 2235 or email to them at info@TradedEndowment.comThis e-mail address is being protected from spam bots, you need JavaScript enabled to view it .
12 Reasons Why TEP is Attractive
With a high capital guarantee, low risk and great returns, it is not a surprise that Traded Endowment Policies (TEPs) have been popular with investors in England and Europe. It is now available in Singapore for you to invest in. Whether planning for children education, your retirement funds or simply to make your money work harder for you, TEPs can be catered to meet your different needs at different stages of your life.
In summary TEPs are:
1. Low product risk
You are investing in a with-profits endowment which is a low risk product. The maturity date of the traded endowment policy is fixed, policies can be found to match your preference. This can be very beneficial when planning for future financial needs, such as paying education fees, retirement plans, mortgage payments etc.
2. High Capital Guarantee
Every Traded Endowment Policy (TEP) that you invest in has a “Capital Guarantee” value in the form of the sum assured plus the attaching bonuses. These values once allocated cannot be reduced and removed. You can choose percentage of Capital Guarantee from 70% to 100%
3. Low market risk
You are investing in a product that is tightly regulated in the United Kingdom.
4. No yearly management & service fee
Once the policy has been legally assigned to you, you become the new owner of the policy. All bonuses declared by the insurance company go directly to you. Unlike Unit Trust/Mutual Funds, there is no yearly management or service fee to marginalise your returns.
5. Inflation Resistant
The Insurance Company's investment exposure to equities and property within the with-profit fund helps offset the effects of inflation.
6. Tax-Free Returns
If you’re non-UK resident, eg. If you’re a Singapore resident, returns on TEP are not taxed at all. Thus, your returns are not reduced by taxation.
7. Access to Investment Management Expertise
Investors in TEPs are capitalising on the Insurance Company's investment expertise accumulated over many years.
8. Less Volatile due to Smoothing of Returns
Conventional with-profit policies benefit from the 'smoothing' process that has always been one of the main attractions of the 'with-profit' principle. Each year bonuses are declared and the Insurance Company actuaries adjust the levels of bonus to take account of the fluctuating investment returns. In determining bonus rates, some of the investment profits achieved during good economic times are held in reserve to help maintain bonus levels during times of economic weakness. The result for policyholders is that, over the life of a policy, maturity payouts reflect the returns achieved on the underlying investments within the with-profits fund, despite short-term fluctuations in investment conditions.
9. Flexibility
TEPs are very flexible. Policies can be selected with a wide range of maturity dates from as short as 2 years to 15 years to suit your specific requirements. Investors are not tied-in as policies can normally be re-traded at any time.
10. Competitive Returns
Because the initial set-up costs have already been paid by the original policyholder, policies can sometimes be acquired at a discount to the underlying guaranteed value, enhancing the overall rate of return to the investor. Currently rates of return, which are all based on the current levels of bonus* for the particular insurance company, vary between 7% to 10% p.a., depending on the remaining term, and with careful planning it is often possible to achieve these returns net of tax.
11. Discounted policies
Many TEPs have been in force for years, some exceeding 20 years. As such, you don't have to pay hefty commission and administration costs, which come with setting up an endowment policy from scratch, thus leaving you to buy policies at a discount to their underlying value.
12. Windfalls
In addition to attractive low risk returns there is sometimes the possibility of additional benefits from demutualisation payments from some Insurance Companys and also 'orphan asset distributions'.
