Does Traded Endowment Make Sense as an Investment? Print E-mail

Some people asked us: "Why would anyone want to buy anyone else's unwanted endowment policy?" Surely they are selling the policy because it has underperformed or is in some other way unsuitable. Either or both may be true. That does not mean that a traded endowment policy (TEP) does not make sense as an investment to others.

In UK, many property investors choose Interest Only Housing Loan (Mortgages), whereby they pay interest only and not the principal in monthly instalment.

The reason for choosing to do so is to enjoy the interest deduction on Housing Loan, which can help them to reduce their income tax. In UK, income tax rate is very high, can be 40%. Thus, an interest only loan help them to reduce tax. 

The banks, to protect their credit risks, in granting the loan “forced” (as part of term and condition) the borrower to also invest in Endowment Policies with tenure that matches the Housing Loan period.  

Thus, when property investors sell their properties, these endowment policies became useless to them and thus, they typically re-sell these Endowment policies to the Open Market.  

Investors buy such Traded Endowment Policies because the main benefit is “buying time”. Such policies already have a built-up Cash value in them as these are typically policies which have been around for 15 to 20 years already.

TEPs may not sound exciting but for thinking investors, they may be ideal vehicles for building capital to meet future financial needs or obligations at a fixed time in the future. They may be used to provide future lump sums tailored to specific needs. Popular uses - albeit not exclusive - include 18th or 21st birthdays, school or university fees and general savings as part of a wider portfolio of investments.

Traded Endowment has the following Unique and Attractive Characteristics:

n       Capital Guarantee 70% to over 100%

n       Guarantee by Strong Insurers rated by S & P

n       Fixed Time Frame: easy to plan your finances

n       No annual management fees

n       Nett Annual returns of 5% to 8%

 Can you think of any other investment with ALL the above characteristics?


TEPs' appeal is based on the fact that they are backed by the strength and proven performance of leading UK life assurance companies, with exposure to a broad range of asset classes, and, in theory, offer steady and stable growth prospects.

TEPs ideally suit investors who are looking for a combination of relative safety and security together with growth potential although, due to their exposure to the performance of the equity market, they may not get back the full value of their investment. Such investors are often wary of investing directly in stocks and shares or other equity-linked vehicles, such as unit trusts, investment trusts and OIECs. In most circumstances, TEP investors can rest safe in the knowledge that they cannot lose any of their initial investment provided they continue to pay the remaining due premiums and keep the policy in force until its stated maturity date.

This is because the basic "sum assured" and annual bonuses allocated by the time of purchase are guaranteed - i.e. "locked in" and together are likely to be worth more than the initial purchase price. In addition, the expenses incurred in the early years (commission and other costs) have been absorbed already by the original policyholder.

Email us at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it to find out how you can also benefit from investing into UK Traded Endowment. You can also call us at 6883 2235 for a no-obligation discussion.

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