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Gaining ground

Recent research shows that awareness of the option to sell endowment policies is growing and so is the market and investment opportunities in Teps.

In the 10 years since it was established, the Tep market has grown from nothing to £500m. This has been driven by the increasing number of policies being cashed in by policyholders and the growing recognition of the market.

The best option for greatest financial benefit is always to keep an endowment policy through to maturity but this is not always possible.

Surrenda-link surveys in 2000 and 2001 showed that for many people a change in financial circumstances is the main reason for looking to cash in a policy. Statistics from the Association of Policy Market Makers reveal this change is frequently brought about by revised mortgage arrangements. Other reasons include the need to pay off debts or splitting assets after a divorce.

In the last 18 months, a key reason to look at the option to sell has been the letters from life offices indicating a projected shortfall on endowment mortgages. When the scale of these shortfalls was first coming to light in 2000, our research showed that an average of 45 per cent of the population knew about the secondhand market in with-profits endowments or their ability to sell a policy. Awareness has increased considerably one year later to 79 per cent.

With the FSA issuing a consultation paper with a view to requiring life offices to disclose all available options to policyholders wanting to cash in policies, even more people will investigate this route.

Policyholders could get up to 30 per cent more than surrender value by selling the policy through a market maker, depending on the nature of the policy and the life office&#39s approach to surrender valuations.

This can also mean the difference between paying debts off and having a little left over to invest or just paying off debts.

The continued increase in awareness is also good news for the Tep investment market. With more policies coming on to the market, the re will be greater and more numerous investment opportunities.

Teps offer excellent low-risk, low-volatility investments for people looking to broaden their portfolio and who have a lump sum to invest. They offer a relatively safe investment with capital growth and can be bought individually, as a portfolio or by investing in collective investment funds made up of a large number and range of Teps. The qualities that make them particularly attractive to investors are:

Versatility

Investors can choose the most suitable policy to meet their need, whether by price, maturity date or life office performance.

Timing

Because of their fixed maturity date, investors can pick a Tep that will mature to meet a future financial requirement such as retirement planning, university and school fees. They are also ideal for children in preference to other savings plans as they benefit from income and capital gains tax allowances.

Returns

The price paid for Teps includes all the past set-up charges and all reversionary bon- uses. These bonuses are locked in and the only unknown factor is how much the final bonus will be.

On average, the total return is around 10 per cent and this can be tax-free for many people.

In summary, the results of our surveys in the last two years have shown an increased awareness of the option to sell. This has led to more policies coming on to the market and in turn means greater choice for investors. Overall, the future both for sellers and buyers looks bright.

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