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The TEP (Traded Endowment
Policy) Market:
Advantages and Disadvantages
Advice
About the TEP Market | Advantages
and Disadvantages
Despite the risks related to endowment polices,
they can be a good form of investment if you are careful about
your purchase. Make it a point to contact an Independent Financial
Advisor before putting your money down. You can generally
rely on them for impartial advice based on up-to-date information
and forecasts regarding the uncertainties and risks of investing
in a policy.
Currently, the market offers many surrendered
or transferred endowments that are put up for sale for a variety
of reasons. These policies, called TEPs (Traded Endowment
Policies), are the most common type of endowment available
and you should know the advantages and disadvantages if you
are considering purchasing one for your needs.
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Advantages of purchasing a TEP:
- The risk of financial loss may be minimized
if the proper bonuses are applied to your endowment.
- Tax rates (though currently higher) are
still in the favour of the policy holder, especially in
cases of traded endowments.
- If you ever need to liquidate, or cash
out your endowment at some point in the future, you still
have the option to trade or sell your policy your
provider or to a third party.
- The setup costs of surrendered and traded
endowments may be minimal or non-existent: in most cases,
the original policyholder already paid for all the planning
and implementation charges. Just keep in mind that the individual
or company selling the TEP may be entitled to a commission,
which may be a considerable amount of money. Always check
this first before finalizing your purchase.
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Disadvantages of purchasing a TEP:
- TEPs do not come with guarantees of profit
or recovery of your original investment. Just observing
the current market or reviewing its past performance should
give you an idea of the risks involved.
- Because the risks associated with endowment
policies have made them relatively unpopular, alternative
methods for securing mortgages have become popular. These
include PEP/ISA mortgages that offer higher income for just
about the same amount of risk.
- The life assurance component of endowment
policies make them relatively more expensive for older homebuyers,
compared to other forms of mortgage security investments.
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