Buying a TEP - FAQ
Q: What is the security of a TEP?
APMM members offer policies that are issued by some of the UK’s most established and highly rated insurance companies. As the policies are regulated contracts, additional security is provided by the Financial Services Compensation Scheme (FSCS), up to 90% of the policy value with no upper limit.
Q: What is the financial commitment of a TEP?
After payment of the purchase price, regular premium payments are required which can be paid by direct debit or standing order direct from the investor's bank account. Some policies may be acquired as paid up, so there will be no further premiums to pay but the policy's value will be adjusted accordingly. There are no other costs after acquisition and no further management is required.
Q: What happens to a TEP at maturity?
After the policy has been purchased, the policyholder signs a Deed of Assignment, transferring the policy to the purchaser and Notice of this is sent to the insurance company.
The insurance company will write to the assigned policy owner, approximately one month prior to maturity and arrange for the investor's preferred methods of payment of the full matured policy proceeds.
Q: What happens if the Life Assured dies? How does the purchaser find out?
Members arrange for references to be taken out on 'lives assured' so that periodic checks can be made with Bank Managers etc on the continuing life of the 'Life Assured'.
Policies will not be invalidated if a Life Assured dies and this fact does not come to notice for sometime, although some adjustment is likely to be made to maturity values to account for premiums paid in the meantime.
Q: Are maturity payouts subject to tax?
Maturity payouts are made without deduction of tax by the life office. This feature of TEPs enables the investors to choose the tax treatment that best suits their own circumstances, by either selecting a 'qualifying' policy that is subject to Capital Gains Tax or by purchasing a 'non-qualifying' policy whose proceeds should be tax-free to basic rate tax payers.
These 'non-qualifying' policies are subject to income tax on a top slicing basis, which will lead to a tax liability for higher rate tax payers. General information about the taxation of TEPs is available on request from Members but policyholders and investors should consult their own tax adviser with regard to their individual circumstances.
For overseas investors the taxation of TEPs will depend on the tax regulations applicable in their country of residence for tax purposes at maturity.
NB: Levels and bases of, and reliefs from, taxation are subject to change. The annual CGT exemption and top-slicing relief are those currently applying and their value depends on the individual circumstances of the investor.