With-Profit Endowment Policies
With-Profit endowment policies are investment based insurance products previously very well established within the UK personal savings market. They are issued by UK Life Offices whose net investments exceed £1.5bn.
- Provide a guaranteed return on the initial sum assured and usually pay annual bonuses, which once declared cannot be removed. Life company assets and liabilities are monitored by the UK Financial Services Authority (FSA)
- At maturity, a further bonus (terminal bonus) is usually paid
- Policyholder pays regular premiums to the insurance company for both life cover and an undertaking from the life company to pay a lump sum when the policy matures
- Performance of policy is still linked to the “stock market” as with-profit funds invest in a variety of asset classes.
According to Money Management, the TEP market grew significantly from the 1980’s up to around £750m by 2007. The market exists because:
- it provides policyholders with an alternative to simply accepting the Surrender Value
- it offers investors the opportunity to buy TEPs at a price below their intrinsic value as a medium to long-term investment
Only one third of all policies taken out reach maturity; policyholders cancel 30% in the first few years, 40% are surrendered or sold mid term, leaving 30% to reach maturity in their original ownership. The traded option is more attractive to life companies because of increasing pressure to keep their policies in force.
PDL International is an exclusive promoter of the world’s largest traded endowment policy fund: Protected Asset TEP Fund (PATF), which provides lower volatility to investing directly into equities.