The market for traded endowment policies (known as TEPs) started over 140 years ago. Since the late 1980’s an active market has developed with volumes having grown from around £25 million in 1990 to over £1.2 billion in 2008. However, it is estimated that only 40% of policies ever reach maturity and a further 25% are cancelled within the first 3 years.

Independent market research done recently by EndowmentTrade indicates that currently 80,000 endowment policies per annum are sold on the open market with the average endowment policy size around £15,000.

Although some contracts run to their full maturity many do not because policyholders’ circumstances change, some are unable to pay their premiums, whilst others need cash urgently. In these circumstances the Life Office will usually agree to pay out a lump sum at the time of the endowment policy’s termination known as the ‘surrender value’.

It is frequently the case, however, that an unfulfilled life policy can be sold on the open market for up to 40% more than the quoted endowment surrender value although 10% to 20% is around the average. It is the differential between the surrender value and the real value of the policy or asset share that creates a low risk investment opportunity.

Increasingly, private and institutional investors have sought investment in a low risk environment where the returns are significantly higher than other Government securities or deposit based products which have no exposure to equities. Likewise, the seller is potentially able to increase the return on their policy by selling it in the open traded endowment market and consequently, every party wins..