TEPs FAQ

Every TEP has an underlying value, which is the guaranteed value, namely the sum assured and the attaching bonuses allocated to date. These values are locked-in and can never be removed nor reduced.

Over time, the locked-in value will grow as future bonuses are allocated and attach to the policy by the insurance company. The bonuses are usually allocated annually and are added to the policy. This guaranteed value effectively provide a secure "floor" below which the investment can never fall.

Depending on the policy, this guaranteed value may be more than the total investment amount. It is not uncommon to find a policy where the guaranteed value far exceed the investment amount. However, in most cases, the guaranteed value may be 70 to 90% of the investment amount.

Like any endowment policy around the world, the returns are not guaranteed. The returns on these investments depend on the profits made by the insurance companies year on year and is at their discretion on how they choose to allocate them. The Formula Maturity Value is the calculated value of a policy at the maturity date using the current bonus rates declared by the insurance company. However, for all TEPs, there is a high guaranteed lock-in value as explained above.

NO, there is no initial sales charge nor upfront management fee when you purchase a TEP. The policy price is transparent. If a policy costs £10,000, then you will pay £10,000 for that policy. There is no hidden cost.

NO, there is no yearly management or service fee when you purchase a TEP. Thus, your returns will NOT be eroded or marginalised as a result of the yearly fees.

Approximately one month before maturity (which may differ, depending on insurance company), the insurance company will inform you directly about the policy maturity. They will seek your instruction on the maturity value. You can either inform them to Telegraphic-Transfer (TT) the money into your account or otherwise.

However if you gear your investment through a UK bank, then approximately 3 months before the maturity date, the bank will inform the insurance company that the policy is pledged as a collateral. The bank will inform the insurance company to TT the money into your personal bank account (with the bank) in the UK. At maturity, the bank will deduct the repayment amount that you owe the bank for the TEP financing and the rest remains at your personal bank account in the UK.

The money in your personal bank account in the UK is yours, it's up to you when and how you want to use it. You may choose to reinvest in another TEP, put it in fixed deposit if the interest rate is better than your home country or TT the money to your home country when the exchange rate is in your favour. Thus, you need not worry about forced conversion to your home country currency.

Market Makers are companies who provide the bridge between policyholders and investors. They undertake detailed administrative checks on the policy and policyholder before completing the purchase. Investors therefore have an assurance that the policies they purchase from Market Makers carry good title. Market Makers arrange and pay for the legal assignment of policies from policyholders and their subsequent sale to investors.

In any country (including Singapore & Hong Kong), there will be policyholders who give up their policies for one reason or another. Reasons may include needs change, debt clearance, re-mortgaging, cash requirement, affordability, and others. They either surrender their policies or terminate them by not servicing the premiums.

The United Kingdom is not an exception. Endowment policies have traditionally been a very good long-term investment. However, only one third of all policies taken out reach maturity; 30% are cancelled in the first few years, 40% are surrendered or sold mid term, leaving 30% to reach maturity in their original ownership (source: APMM). These percentages may vary from country to country.

The market exists because investors believe that the Surrender Value offered by many insurance companies often does not represent the full value of a continuing contract. Thus by taking over the policies, they can realise the full value of the policy at maturity. This offers the investors excellent investment opportunities with attractive returns.

Investors have choices. They can select policies from credible and established insurance companies with Standard & Poor's financial strength rating of "A" and above.

Firstly, we need to evaluate the probability that the insurance companies of the above pedigree failing. However, if the worst case happened and the insurance company that you purchased from went into liquidation, the "Financial Services Compensation Scheme (FSCS) initially tries to secure continuity of insurance by seeking to arrange a transfer of the insolvent insurer's ongoing policies to another insurer, or by the issue of substitute policies of another insurer, which will protect 90% of the "future benefits" under those policies..........If this is not possible, the FSCS is required to pay to the policyholder a sum equal to 100% of the first £2,000 plus 90% of the value attributed to the policy as at the winding-up date. This value will be calculated actuarially in accordance with the Insurance Companies (Winding-Up) Rules 1985. These are Government Regulations that set out how the liabilities to policyholders of insolvent insurers are to be paid." David Lamb, Senior Claims Officer, FSCS

A geared investment portfolio is when you choose to invest your TEP through bank financing.

If investors are looking for a higher spread of risk and potentially higher return, they may wish to consider the option of gearing. Through gearing, it allows the investors to purchase a broader range of policies than would otherwise be possible. As such, the investors can spread his risk through more policies and insurance companies.

For most of us, it is very unlikely for us to engage a solicitor to go through the fine prints when we buy an insurance policy or invest in unit trusts. However, when you invest in TEP, the market maker will engage a solicitor to check the following:

If you choose the gearing investment mode, then the bank will engage their solicitor to further go through another round of check on the above before they approve the loan facilities.

Furthermore, you are investing in a policy from credible and established insurance company in a tightly regulated market in the United Kingdom. So instead of not having any solicitor to represent you in your investment, now you have two sets of solicitors (if gearing) to go through the details for you before the assignment process can get the go ahead.

The Law Society in the United Kingdom operates a Solicitors Indemnity Fund to provide compensation for those who have suffered financially as a result of solicitor's negligence. All solicitors in the UK are required to provide insurance cover with this fund to the extent of £1,000,000 for each and every claim.

TEPs have also gained popularity recently among many forward thinking global investors, who have moved ahead of the masses to snap up great value policies. These include savvy investors, high net worth individuals, professionals, businessmen, SMEs, companies and more. In 2002 alone, more than £500 million or S$1.4 billion worth of TEPs was sold.

According to the Inland Revenue of Singapore, the return from the traded endowment policy is not taxable in Singapore, it is treated as capital gain.

In the United Kingdom, foreigners who bought TEP are not subjected to capital gain tax.

The above information may change according to the tax authority in each country. Please consult your tax consultant for verification and confirmation.

If people tell you that TEP maturity return is guaranteed, it is not true. And if people tell you that your capital is always 100% guaranteed, it is also not true, although in many cases, the capital guaranteed does exceed the investment amount.

Like all insurance products around the world, the maturity value is not guaranteed, although there is usually a guaranteed %. UK endowment policy is no exception.

While you are considering TEP, do consider the overall attributes of TEP, not just the potential return:

- Low product risk : it is a traditional with-profit low risk endowment policy

- Low market risk: Regulated tightly by the Financial Services Authority in UK

- High capital guarantees because of the locked-in sum assured and attaching bonuses, which may exceed the investment amount

- Fixed maturity date: you can predetermine your preferred maturity date - we will find the policy to meet your needs. This is invaluable when planning for future financial needs, such as paying for your child's education fees, celebrating an important anniversary or occasion like 60th birthday, 25th wedding anniversary, etc.

- Flexible investment term: you can determine your preferred investment period, from 1 to beyond 15 years. If you require a 4.3 year investment term, we will find policies that meet your requirements.

- Flexible investment amount: depending on your investment amount, be it £3,000 or beyond £1,000,000, we have the policies to suit your needs. We will recommend policies to meet your comfort level.

- Control over investment: when you invest in TEP, the policy will be legally assigned to you, giving you control and flexibility over the policy; you can choose to reassign, surrender, sell, state beneficiary or "will" it.

- Discounted policies: many TEPs have been in force for years, some exceeding 20 years. As such, you don't have to pay hefty commission and administration costs, which come with setting up an endowment policy from scratch, thus leaving you to buy policies at a discount to their underlying value.

- Highly established & proven: although TEP is new in Asia, it already has a 160 years history, dating back to 1843

- Less volatile due to smoothing effect: In good investment years, not all investment returns are distributed by the insurance company. The balance is placed on reserve. These reserves can then be used to maintain bonus rates in years of poor investment return (like at present time), and as a result, create a more consistent “smooth” investment return to investors.

- No age & health constraints: anyone above 21 can buy TEPs regardless of health condition.

- Attractive return: the returns associated to your policy is 100% yours. There is absolutely no management, service or other additional fee that may erode your returns. Unless you opt for the gearing option, then you would have to pay the bank for the interest and fees for lending. According to the formula maturity value for most of our policies, the returns are in the range of 6-9% compounded annually.

There are risks in any investment. However, it is important to know the risks, evaluate them in perspective and reduce them accordingly, so that the investment may not be risky.

The first category of risk is the probability that the insurance company goes insolvent.

Although investors may not have control over such an event, investors, however, do have a high degree of control over which insurance companies they choose to buy the policy from. It is wise to choose credible and established companies, with Standard & Poor's financial strength rating of "A" and above.

The second category of risk is currency risk for foreign investors. However, we must add that the exchange rate for Sterling Pound vs major Asian currencies such as, Singapore Dollar and Hong Kong Dollar have been rather stable over the last 12 years.

Year	365 days Average
2003	2.80238 (1 Jan to 18 Mar)
2002	2.69102
2001	2.58273
2000	2.61486
1999	2.74245
1998	2.77346
1997	2.43647
1996	2.20321
1995	2.23832
1994	2.33862
1993	2.42829
1992	2.87732