Question to sell Endowment

dunstonh

The TEP companies / brokers etc. do make claims that you can obtain up to 40% more than the surrender value, but I think that for the majority this is optimistic.

Very much optimistic. The best endowments would get that sort of figure but then if you are being offered 40%, it should make you wonder why your endomwent is being viewed as so good.

Not all endomwents are bad and many more have gone back into a potential surplus position over the last few months. If someone is willing to buy it, then there is something about it that may be worth keeping for yourself.

It seems to me that it very much depends on who the policy is with that is a primary determing factor.

It is the main factor above all else really.

davidncohen

Today's papers - L&G increases with-profits bonuses:

http://money.guardian.co.uk/endowments/story/0,,1716314,00.html

CannyGirl_3

davidncohen wrote:

I got another TEP valuation today,

Thanks David

Please could you explain to me who/what are TEP companies, and are there any who you would recommend?

exil

If endowments do start to perform better, I wonder if people will start sueing for being advised to get rid of them.....

dunstonh

exil wrote:

If endowments do start to perform better, I wonder if people will start sueing for being advised to get rid of them.....

It does seem a bit daft when you look at the compensation method used.

People have been getting compensation for endowments based on a potential shortfall caused by a stockmarket crash which is actually very beneficial in the early years of a unit linked contract. They then pocket the compensation, keep the endowment and many will end up getting paid a surplus as the original advisor was accused of saying.

The whole thing could have been handled so much better.

davidncohen

CannyGirl wrote:

Thanks David

Please could you explain to me who/what are TEP companies, and are there any who you would recommend?

Dear Cannygirl,

TEP stands for Traded Endowment Policies. It's in effect a second-hand endowment, a policy that has been sold by the original policy holder (i.e. you or me) to another investor before the end of the agreed term of the policy.

Once sold, TEPs are legally assigned to the new owner who takes on the responsibility for the continued payment of future premiums. The life assurance element of the policy is not transferred but remains on the original life assured. When the policy reaches maturity (or the life assured dies) all the benefits are paid to the new owner.

More facts:

- The price obtained for a policy on the open market is normally above the surrender value that would be paid by the life office.

- It is this differential between the surrender value and the real value of the policy that creates a low-to-medium risk investment opportunity for the purchaser of such plans.

- When you purchase a second hand endowment policy, not only has the original policyholder paid all of the initial set up costs, but it has participated in at least five years of reversionary bonuses which cannot be taken away. Add these to the sum assured and you have "underlying guarantees" that is the guaranteed minimum pay out at maturity. The policy will also benefit from participation in future reversionary bonuses and a final terminal bonus.

Not all endowments can be traded. For starters, unit linked policies and those linked to pension plans can not be traded on the TEP market. Nor can those policies that have not been in force for more than 5 years or at least a third of the policy term. Furthermore the endowment must have a surrender value in excess of £about £1500 / £2000.

There are many companies throughout the UK who purchase and re-sell endowments to investors all over the world. The popularity of TEPs is growing, and as a result, some market makers are offering the sellers increasingly higher prices for their endowments as well as taking steps to speed up the time taken to complete the transaction. You can now get instant, or very quick turnaround, quotes on your endowment.

Hope this helps.

David

davidncohen

I now have my L&G annual bonus statmenet for the year ending 31-Dec-2005:

Basic sum assured: 14382.00
Total existing bonuses: 9522.20
Total new 2005 annual bonus: 226.90
Total bonuses: 9522.20
Total of basic sum assured and annual bonuses: 24131.10
Guaranteed amount on death: 47000
Sum assured annual bonus rate: 0.75%
Existing bonus annual bonus rate: 1.25%
Current final bonus rate: 76%
(Natch, this is not guaranteed)
Monthly payment: 67.70 (up-to-date)
Type: Low start with profits
Life assured: Mine

Comparing the above with my bonus statement for 2004 (see previous reply), the bonus rates are exactly the same!! The Final Bonus Rate has jumped quite a bit to 76%, but this will probably change when it rains on the third Tuesday of each month :-).

So, the favourable returns of the last few years are still not being reflected in the bonus amounts.

Given my recent TEP quotes (see below), which I would imagine wont change that much, does anyone have any further thoughts on whether it's worth holding on?

Thanks in advance.

Regards,

David

vinno65

dunstonh wrote:

It does seem a bit daft when you look at the compensation method used.

People have been getting compensation for endowments based on a potential shortfall caused by a stockmarket crash which is actually very beneficial in the early years of a unit linked contract. They then pocket the compensation, keep the endowment and many will end up getting paid a surplus as the original advisor was accused of saying.

The whole thing could have been handled so much better.

Hi Dunstonh,

tut tut tut i'm watching your posts! People have not been getting compensation for potential shortfalls! An under performing endowment is no grounds for a miss-sale. What people are being redressed for(not compensated) and you are quite aware of this so I don't understand the miss-leading post above, is for the fact that the risks inherent with endowments were not explained to them at the point of sale. I couldn't give a toss if my endowment is possibly going to do better in the future, it could just aswell be a complete dodo. Now that I am aware of the facts about endowments I am not going to risk my house on it. The TEP market (that people keep going on about) is just another form of a risk based investment. These people may well also get burnt but they are aware of the risks and are not gambling their houses on the outcome.
As to people who have been redressed but continue to keep their endowment in the hope of more profit I fully agree that the firm who paid compensation should keep an eye on the policy and if it does turn in a profit at maturity should demand their money back!!
regards Vinno

vinno65

exil wrote:

If endowments do start to perform better, I wonder if people will start sueing for being advised to get rid of them.....

No-one had been advised to get rid of them! People have now been given the information that they should have recieved at the point of sale so they can make a judgement on whether or not they want to risk their house on the outcome.
If people have converted to a repayment mortgage, have not recieved redress and so have to decide whether or not to keep the endowment going as a savings vehicle (remembering that firms have their own methods of calculating surrender values) then it is quite legitimate that they seek the advice of Edinvestor or Dunstonh as to wheter they're chucking good money after bad.
regards Vinno

dunstonh

tut tut tut i'm watching your posts! People have not been getting compensation for potential shortfalls! An under performing endowment is no grounds for a miss-sale.

I didnt say that it compensation was paid because of shortfalls. I said the compensation method takes that into account.

We have a period of poor stockmarket performance and endowments go into shortfall. Compensation is based on the surrender value and at the moment surrender values may be low (not as low as 3 years ago but still lower). In the years to come the values could increase and the endowment go back into surplus and these people would have been paid a redress amount based on a potential shortfall x number of years into the plan and not the final maturity value which could be in surplus (or an even worse position than the point of redress).

An example may be someone who had a unit linked endowment, complained and get redress in 2002 but held onto the endowment. Had they complained now, they would have got less redress and may not have got any redress at all. At maturity, they could get a surplus and get to keep the redress.

So, whilst you cannot complain about a potential shortfall, the redress method does take that into account.