Traded Endowments

Holders of with-profits endowment policies who no longer wish to continue paying premiums and who also wish to raise a capital sum have two options:

To surrender the policy
To sell their policy on the open market.

In about 25% of cases, the open market price of the policy will exceed the surrender value. Hence a market for traded (or ‘second-hand’) endowment policies (TEPs) has grown.

Basic features:

The original policyholder (the vendor) sells their endowment policy to an unrelated third party (an investor) for a cash sum.
The new owner takes over responsibility for premium payments but the life assured, who is often the original policyholder, remains unchanged.
Benefits under the policy are paid on maturity or prior death of the life assured, but are paid to the new owner.

TEPs offer buyers the relative security of a with-profits investment with a guaranteed minimum return on a known date.

Reversionary bonuses already attaching at the date of purchase cannot be withdrawn and the policy continues to be eligible for any future reversionary and terminal bonus at death or maturity.

The investor must maintain premium payments to the end of the original term or the earlier death of the life assured, but has the option to re-sell, surrender or make the policy paid-up.