By Elaine Moore
Published: March
9 2007 14
:35 | Last updated: March 9 2007 14:35
Published: March
9 2007 14:35 | Last updated: March 9 2007 14:35Where once the annual bonus season for with-profits policies was a heady time of year, it raises little more than a flicker of interest now. The decline of annual bonuses has encouraged many policyholders to think twice about holding on to their policies until maturity.
According to the Association of Policy Market Makers (APMM), a trade body for the secondhand market in endowments, two thirds of all policies are not held by the original holder to maturity. Policyholders can either surrender their policy or sell it as a traded endowment policy (Tep).
While endowments have suffered from bad press, secondhand endowments have gained in popularity. The APMM says Teps can offer investors a low-risk, tax-efficient opportunity with known minimum values and the potential for capital growth. Brian Goldstein, APMM chairman, says the industry experienced a record year in 2006, driven by high demand from overseas.
What is an endowment policy?
Endowment policies were popular as long-term investment vehicles in the 1980s and early 1990s when many were sold to people as a means of paying off their mortgage.
Investors pay a monthly premium and in return are guaranteed a minimum amount that will be paid out after a specified number of years. The attraction for many investors lay in the potential for additional returns in the form of annual and maturity bonuses.
The premiums paid by investors are channelled into a with-profits fund. However investment returns are not guaranteed and these with-profits funds can go down as well as up. Many who bought policies in the 1980s and 1990s found that equity markets did not perform as well as expected and left their policies with insufficient funds to pay off their mortgage.
Why should I want to sell my policy before it expires?
Policyholders can ask for a projected maturity value. If this forecast does not meet expectations, you might consider cashing it in. The options are to surrender the policy or look for a buyer.
What is surrendering?
You can surrender your policy to the life office that sold it to you. You can request a surrender value at any time, which is the cash lump sum you will receive if you cash in your policy. Some feel surrender values do not reflect the true value of the policy. Hence a market for traded endowment policies has arisen because many feel they can pay a little more than the surrender value and still make a tidy profit if they hold the policy to maturity.
How do I go about selling my policy?
If you decide to sell, you can choose either to go to a marketmaker or an auctioneer. You can contact either directly or through a financial adviser.
If you contact APMM (www.apmm.org) your policy details will be circulated among its marketmaker members and a bid offer may be made within 48 hours.
Auctioneers Foster & Cranfield hold “open outcry” auctions for policies in London and some surrounding towns, and will recommend a reserve price.
The process of selling a policy typically takes three weeks. But before you sell in the traded market, you should always seek out a surrender value, on the off-chance that this is higher.
You are liable for capital gains tax on the profits of most policies in the same way as if you surrendered the policy to the life office.
What are marketmakers?
These are companies that provide a bridge between policyholders and investors. APMM members such as Policyplus, Surrendalink and APP are regulated by the Financial Services Authority. They will conduct checks on the policy before the purchase is completed and quote a price for buying the policy. Most marketmakers accept responsibility for the payment of premiums from the date the contract starts so once you have sold the policy you no longer have to make any monthly payments.
What can I expect to get for my policy?
Let’s take a fictional example. If you had taken out a 25-year endowment policy with a life office and 10 years into the life of the policy decided you did not want it any more, you might get £20,000 as a surrender value from the office.
In general the average you might expect selling it on is 15 per cent above the surrender value, so in this case it could be around £23,000.
What is the traded endowment policy market?
The market for Teps works on the assumption that endowment policies will grow steadily in value until they mature as the life office declares its annual bonuses. As each policy has a maturity date, an investor can buy one knowing exactly when it will pay out.
For the seller the attraction is that they should receive more than the surrender value and no longer have to pay premiums.
Who buys Teps?
Private investors can hold secondhand policies within a self-invested personal pension fund. There are also funds in the UK and Europe that invest in traded endowment policies, such as the Life Offices Opportunities Trust and Kleinwort Second Endowment Policy Trust.
According to the Association of Policy Market Makers (APMM), a trade body for the secondhand market in endowments, two thirds of all policies are not held by the original holder to maturity. Policyholders can either surrender their policy or sell it as a traded endowment policy (Tep).
While endowments have suffered from bad press, secondhand endowments have gained in popularity. The APMM says Teps can offer investors a low-risk, tax-efficient opportunity with known minimum values and the potential for capital growth. Brian Goldstein, APMM chairman, says the industry experienced a record year in 2006, driven by high demand from overseas.
What is an endowment policy?
Endowment policies were popular as long-term investment vehicles in the 1980s and early 1990s when many were sold to people as a means of paying off their mortgage.
Investors pay a monthly premium and in return are guaranteed a minimum amount that will be paid out after a specified number of years. The attraction for many investors lay in the potential for additional returns in the form of annual and maturity bonuses.
The premiums paid by investors are channelled into a with-profits fund. However investment returns are not guaranteed and these with-profits funds can go down as well as up. Many who bought policies in the 1980s and 1990s found that equity markets did not perform as well as expected and left their policies with insufficient funds to pay off their mortgage.
Why should I want to sell my policy before it expires?
Policyholders can ask for a projected maturity value. If this forecast does not meet expectations, you might consider cashing it in. The options are to surrender the policy or look for a buyer.
What is surrendering?
You can surrender your policy to the life office that sold it to you. You can request a surrender value at any time, which is the cash lump sum you will receive if you cash in your policy. Some feel surrender values do not reflect the true value of the policy. Hence a market for traded endowment policies has arisen because many feel they can pay a little more than the surrender value and still make a tidy profit if they hold the policy to maturity.
How do I go about selling my policy?
If you decide to sell, you can choose either to go to a marketmaker or an auctioneer. You can contact either directly or through a financial adviser.
If you contact APMM (www.apmm.org) your policy details will be circulated among its marketmaker members and a bid offer may be made within 48 hours.
Auctioneers Foster & Cranfield hold “open outcry” auctions for policies in London and some surrounding towns, and will recommend a reserve price.
The process of selling a policy typically takes three weeks. But before you sell in the traded market, you should always seek out a surrender value, on the off-chance that this is higher.
You are liable for capital gains tax on the profits of most policies in the same way as if you surrendered the policy to the life office.
What are marketmakers?
These are companies that provide a bridge between policyholders and investors. APMM members such as Policyplus, Surrendalink and APP are regulated by the Financial Services Authority. They will conduct checks on the policy before the purchase is completed and quote a price for buying the policy. Most marketmakers accept responsibility for the payment of premiums from the date the contract starts so once you have sold the policy you no longer have to make any monthly payments.
What can I expect to get for my policy?
Let’s take a fictional example. If you had taken out a 25-year endowment policy with a life office and 10 years into the life of the policy decided you did not want it any more, you might get £20,000 as a surrender value from the office.
In general the average you might expect selling it on is 15 per cent above the surrender value, so in this case it could be around £23,000.
What is the traded endowment policy market?
The market for Teps works on the assumption that endowment policies will grow steadily in value until they mature as the life office declares its annual bonuses. As each policy has a maturity date, an investor can buy one knowing exactly when it will pay out.
For the seller the attraction is that they should receive more than the surrender value and no longer have to pay premiums.
Who buys Teps?
Private investors can hold secondhand policies within a self-invested personal pension fund. There are also funds in the UK and Europe that invest in traded endowment policies, such as the Life Offices Opportunities Trust and Kleinwort Second Endowment Policy Trust.
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From Financial Timeshttp://www.ft.com/cms/s/2/bc59414e-ce3b-11db-b5c8-000b5df10621.html published on March 9, 2007
