What is a second hand endowment?

A second hand endowment is an investment based Life Assurance policy that is traded on the open market. They are usually sold by the original policyholder when they are no longer required. For example, a policy may have been used as a repayment vehicle for an interest only mortgage, the properly has been sold and the endowment is no longer required.

Why have second hand endowments become so popular?

The market in second hand endowments has grown in popularity because it enables policy owners to sell their policies on to new owners for a higher price than the surrender value offered by the issuing insurance company. The new owner gains a low risk investment with most of the set up charges already paid and the benefit of all future bonuses.

What do they offer compared to other types of investment?

The advantages to the new policy owners are:

• often a higher rate of return than sterling deposits
• initial set up charges have usually been covered by the original policyholder
• low volatility. Once reversionary bonuses have been added to the policies they are guaranteed and cannot be taken away.
• can be assigned to other financial institutions for mortgages, bank loans and other purposes.
• can be used for school fees planning, mortgage finance, retirement planning or for investment purposes.
• the new policyholder is entitled to claim the life assurance cover if the original life assured dies.
• the policy may be resold on the second hand traded market if no longer required
• no age or health restrictions

Attractive Returns With Security ?

These are investment-based insurance products in which the life assurance element is generally small. However, the combination of a guaranteed sum assured and a two tier bonus system means that there is a substantial guaranteed element to the return obtained.

Over many years insurance companies have been able to provide strong and consistent returns to their policyholders, mainly through holding substantial, widely diversified and balanced portfolios of investments. Large reserves enable them to "smooth" the effects of fluctuating investment conditions to produce a consistent return for policy holders.

Are they inexpensive to buy?

Up to 60% of the maturity value of a 25 year policy comes from the "Terminal Bonus" (paid at maturity), and the original policy holder can lose this entitlement if the policy is surrendered to the insurance company before maturity. While the new investor pays more than the quoted surrender value, this remains below the policy's intrinsic value, due to the Terminal Bonus weighting. The new owner is thus able to benefit from the full value at maturity.

It should be noted that some insurance companies have a better track record than others for bonus payments and purchase price is not always a good indicator of value. It is important to seek professional advice when considering a purchase.

Can The Policy Be Resold ?

Should the investor not wish to maintain the policy to maturity, for any reason, it can be either surrendered to the insurance company or offered for sale on the traded endowment market. However, it must be noted that the policy's full potential is not realised until maturity.