Trading Second Hand Endowment Policies
What is a Traded Endowment Policy?
The vast majority of policyholders do not maintain the policy to the maturity date, usually 25 years from commencement. Often the policy is surrendered to the insurance company who quote a value significantly lower than an investor would pay, others are traded on the open market as second hand endowment policies.
These "Traded Endowment Policies" can offer attractive returns with a substantial guaranteed element. The purchase price is often lower than this guaranteed element so there is no risk of loss of capital assuming the premiums are paid to maturity. These policies are legally assigned to the new owner who continues to pay the premiums
At maturity or on the death of the original life assured all the benefits of the policy are paid to the new owner. Should the owner wish to redeem the policy before maturity they can surrender it to the life office or sell it back to the A1 Policy Shop Ltd on preferential terms. The new owners must be aware that if they surrender the policy to the life company their value can be much lower than the original purchase price.
The Maturity Value is calculated using the latest bonus rates and projecting this forward to maturity, the sale price is based on the Calculated Maturity Value discounted back to today having taken the future premiums into account. Should these bonus rates change then the Calculated Maturity Value will go either up or down.
What happens if bonus rates change?
Below is a Sensitivity Table to show the affect on the investment return (%) following a change to the bonus rates. This assumes that the new bonus rate remains in force until maturity.
|
REVERSIONARY BONUSES |
||||||||
|
+15% |
+10% |
+5% |
0% |
-5% |
-10% |
-15% |
||
|
TERMINAL
BONUSES |
+15% |
9.10 |
9.08 |
9.07 |
9.05 |
9.04 |
9.03 |
9.01 |
|
+10% |
8.43 |
8.41 |
8.39 |
8.38 |
8.36 |
8.35 |
8.34 |
|
|
+5% |
7.74 |
7.73 |
7.71 |
7.69 |
7.68 |
7.66 |
7.65 |
|
|
= |
7.04 |
7.03 |
7.01 |
7.00 |
6.99 |
6.98 |
6.96 |
|
|
-5% |
6.35 |
6.34 |
6.33 |
6.31 |
6.30 |
6.28 |
6.26 |
|
|
-10% |
5.65 |
5.64 |
5.62 |
5.61 |
5.59 |
5.58 |
5.55 |
|
|
-15% |
5.00 |
5.00 |
5.00 |
4.99 |
4.98 |
4.96 |
4.94 |
|
Sensitivity table for a Norwich Union policy commenced 1983 maturing in 2008
The Investment Attraction for Buyers
- The guaranteed bonus and basic sum assured are already known
- Potential for high returns and additional benefits from possible demutualisation of some life offices and distribution of orphan foods
- Investment in Sterling
- Maturity dates to suit your investment and taxation requirement
The benefits for those wishing to surrender their policies
- A free valuation on receipt of the completed form
- An immediate offer for suitable policies
- The transaction handled by independent solicitors at our cost
- Speedy completion upon receipt of documents