Selling a TEP - FAQ
Q: What is an endowment policy?
A traditional with-profits endowment policy is a regular savings policy, combining life cover and investment with guarantees that a minimum amount, the sum assured, will be paid after a specified number of years at the maturity date.
The premiums are invested in a with-profits life fund to achieve steady returns for policyholders. Normally the fund declares an annual reversionary bonus, which cannot be taken away after it has been awarded. In this way the guarantee of the minimum policy maturity value builds up year by year, consisting of the basic sum assured and the total of annual bonuses awarded.
A terminal bonus is normally added when the policy matures. However, it should be remembered that investment returns cannot be guaranteed and that future life fund profits can go down as well as up.
Q: What is a TEP?
A Traded Endowment Policy (TEP) is an endowment policy which an investor purchases from the original policyholder. Policies traded are usually with-profits endowment policies. The new owner assumes responsibility for the premiums until maturity. On purchase of a mid-term endowment policy, all the benefits, including the death benefits pass to the new owner.
Q: Should I keep my policy or sell it?
Members of APMM operate on an 'execution only' basis and so are not able to advise you, but APMM can arrange for your policy to be valued, without commitment or charge. If you need advice you should speak to your own independent financial adviser (IFA)
Q: Why don’t you accept policies from all Life Offices?
The Surrender Values paid by different life offices vary in relation to the worth of a policy (its asset share) and APMM members cannot beat the Surrender Values offered on some policies.
Not all policies issued are with-profit policies; some are unit linked or unitised with-profit policies. At present, these latter categories are not usually suitable for the TEP market since no value can be obtained in excess of the quoted unit value. Investors, not unnaturally, prefer some Life Offices to others.
Q: Why do you need the Surrender Value?
The Surrender Value is the price which a Life Office is prepared to pay for a policy. The calculation to determine an appropriate price to pay for your policy by a Member is made independently of the Surrender Value. However, clearly the price offered by a Member needs to be greater than the Surrender Value and the Surrender Value is therefore a benchmark.
Q: How much over the surrender value does the market give?
The amount APMM members are able to pay in excess of surrender value varies from policy to policy. It depends on a number of factors. It could be 5% or even 30%. On average this is between 3% - 15%.
Q: What is the procedure following an agreement to sell a policy to a Member?
A contract note is issued, which is binding on both the seller and the purchasing Member.
All the relevant documents must be sent to the Member without delay, together with a signed letter of authority enabling the member to obtain policy information from the Life Office. The member will make enquiries with the Life Office and other parties, as necessary, before being in a position to pay you for your policy.
Q: How long does the process take?
This will vary, depending on several factors:
- Life Office
- Availability of all relevant papers and information
- Life Office administrative efficiency
- Complexity of the policy’s history.
Typically, a policy sale takes 3 weeks to process but there are exceptions, both in terms of more rapid completion and delays occurring which are beyond the Member's control.
Q: Do I have the right to cancel the contract if I change my mind?
When you accept a Member's offer to buy your policy, you enter into a legally binding contract.
Q: When can I expect to receive my money?
You will receive a cheque for your policy as soon as all necessary clearances have been obtained by the Member. The time taken will be dependent on many factors.
Q: What happens if my policy has lapsed?
As long as the policy has not lapsed more than 12 months prior to an APMM member agreeing to buy it, there should be no problem. However, with some life offices the period may be shorter. The policy needs to be capable of re-instatement.
Q: What happens if my policy is paid up?
Policies become paid up when, by arrangement with the Life Office, no more premiums are payable but the policy remains in force until the original maturity date. Such policies may be tradeable. (In which case an adjustment is made to the sum assured and /or accrued bonuses.)
Q: Will there be any tax implications if I sell my policy?
The tax position will be the same as if a policy is surrendered to the Life Office.
Qualifying Policies. The original holders will not be liable to either income tax or capital gains tax on selling the policy unless the policy is sold within the first ten years of the policy term, or if sooner, within the first three quarters of the term, or it has been made paid up in that period.
Non-Qualifying Policies (usually as a result of its term being altered in some way). The original holder may be liable to income tax at the difference between the higher rate and basic rate on the gain on sale. However, no liability to capital gains tax will arise.
Each Member can provide more detailed information but as everyone’s circumstances are different you should always consult your own advisor.
Note: Levels and bases of, and reliefs from, taxation are subject to change.
Q: When do I stop paying premiums on my policy?
The responsibility for the payment of premiums will be laid down in the contract. Most APMM members accept responsibility for paying any premiums due after the date of the contract. N.B. An adjustment will be made to the price paid for your policy to take account of the premiums either outstanding or overpaid at the contract note date.
Q: Do you buy pensions?
APMM members specialise in with-profit endowment and whole-of-life endowment policies only.
Q: Why will you not look at a unit linked policy?
We would be unable to obtain a quote for the purchase of a Unit Linked Policy, as it is our understanding that there is no market in this particular type of contract.