TYNESIDE FIRM SAYS
‘DON’T THROW IN THE TOWEL’
TO WITH PROFIT POLICYHOLDERS

The recent shock headlines over under-performing with profit endowment policies has led to many homeowners surrendering policies that could still deliver, states the HRC Group of Newcastle.

The financial management firm has launched an Endowment Recovery service that helps homeowners hold on to their endowments and through a planned investment strategy aims to see it perform without any shortfall at the end of its term.

Simon Richards, director at HRC Group, explains: ”Since homeowners began to receive amber and red letters stating their endowment policies may under-perform there has been a huge amount of confusion among consumers on what they should do next and often their knee-jerk reaction is to sell or surrender the policy immediately and revert to a repayment mortgage.

“Somewhere along the line a lot of people whose policies are actually going to perform well have been swept away with this trend, and they are both losing out on its maturity sum and are paying out a lot more than they should over the term of their mortgage by switching to repayment method.”

HRC Group has based its Endowment Recovery Scheme on the simple fact that there are investors out there willing to buy second hand policies.

“If all these endowments were not worth the money being paid into them, then these companies would not be buying them up on behalf of investors. It is a simple fact that there are about 25% (Source: ABI March 2004) of endowment policies out there that will not actually show a shortfall at the end of their term – these are the policies these second hand endowment companies want to buy. There is still growth in the market, and they know by holding on to the policy until it matures they will stand to make a profit from their investment.”

HRC’s Endowment Recovery Scheme offers a new angle on predicted shortfall in an endowment policy. It allows policy owners to boost the value of their endowment by buying further second hand policies called a Portfolio of Traded Endowment Policies or TEPs. These are bought through a loan( which is geared against the original policy) and is paid off through the maturing policies during your endowment’s term – effectively insuring against any shortfall and even possibly creating an additional payout at the end.

This system can also be adapted to work on Investment Bonds where the insurer is applying an MVA to any withdrawals.

“We help our clients build a portfolio of TEPs so their money is making money for itself. With the correct advice we can help homeowners use their endowment policies wisely, build upon them to protect their performance and all without any extra expense every month, so they are still benefiting from the lower mortgage payments afforded to an endowment mortgage product rather than repayment.”

Why would you want to buy a TEP?

In short, because you can buy them at less than their real value. Why is that? Well, recent changes in legislation have meant that Insurance Companies have to tell people who approach them to surrender their policy that there is the option to trade their endowment rather than surrender it. This has led to a surge in supply of policies to the second hand market, and prices have been driven down. In some case the price you can buy a second hand policy for is lower than its guaranteed minimum value.

TEPs have shown they produce superior returns for investors because the new owner has the great advantage in that he/she inherits all the benefits accrued by the previous owner.

These benefits are guaranteed and locked into the policy and they provide a solid base for future growth. So, in effect, the investor is buying this past performance.

The original policyholder benefits by selling a policy for a higher price than surrendering it, and at the same time, the buyer of the policy can buy it for less than its underlying value – or, in simple terms, investors buy TEPs at a discount.

Not all TEPs are worth buying, and without knowing how to value each one individually, you could come unstuck if you buy the wrong one.

Specialist companies exist to work with Independent Financial Advisers to ensure only those policies that are worth buying (based on information known at the time of purchase) are bought for investors. They ensure investors get the right balance of TEPs issued by different Insurance Companies and can help you predict if any tax would be payable.

Carefully selected TEPs regarded as low risk, are diversified by nature, and have provided excellent investment returns with low volatility.

Please note that the ultimate maturity value of a with profits policy will depend on the profits made by the insurance company and its policy as to the distribution of those profits.

For more information, please contact us on 0191 488 8445
or use this email link. office@hrcgroup.net