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14 April 2014
Solicitors generally have a good understanding of endowment policies and a great many have such policies themselves.
Therefore, recent bad publicity regarding newly issued endowments, together with rapidly increasing numbers of home owners who find themselves saddled with negative equity will not have passed unnoticed for many solicitors who may handle the associated conveyancing transactions and financial restructuring.
However, the traded endowment policy market is still dramatically under-utilised in legal circles as solicitors allow clients to surrender their endowment policies without considering the alternatives, one of which is to sell policies to the growing number of endowment policy market makers.
The market in traded endowment policies has grown substantially over the past two years. It is estimated that approximately £3 billion worth of endowment policies are surrendered each year to their respective life offices.
At least two thirds of these policies will be unsuitable for sale because they have either not been running long enough or they are too small.
However, the fact that of the remaining £1 billion only about £150 million worth of policies were traded on the open market last year suggests that many thousands of those lives assured are simply unaware that they could be missing out on significant sums of money by surrendering their policies rather than selling them.
As life assurance companies continue in their desire to reward those long-term investors who hold on to their policies until maturity, surrender values for those who wish to cash in their policy early have generally failed to reflect a true market value.
This, together with the attraction of long-term investments with a large guaranteed element and favourable tax position, led to the creation of the traded endowment policy market.
'Market makers' purchase unwanted endowment policies and sell them on to private or institutional investors. Sums of up to 35 per cent over life
office surrender values are frequently paid for suitable policies and in addition most market makers will pay an introducing solicitor a three per cent commission based on the consideration paid for any particular policy.
In some situations, far higher sums can be obtained. One case concerned a with-profits endowment policy with a reputable life assurance company that offered the policy holder through his solicitor a surrender value of £7,192. After contacting us the solicitor received an offer on behalf of his client of £17,039, some 116 per cent more than the life company had offered. The policy holder was delighted as was his solicitor who, for simply making one telephone call, earned a three per cent commission. While figures of this size are not typical, one could expect average offers of between 10 per cent and 30 per cent for most suitable policies.
A sale can usually be completed in the same time or less than a surrender would take and purchase by way of a Deed of Assignment is swift and efficient. Incidental costs of purchase are borne by the purchasing market maker who, unlike life assurance companies, has an incentive by way of competition to complete the transaction in the minimum possible time.
While many endowment policies will still prove to be an excellent investment, financial necessities mean many lives assured will be left with no option other than to dispose of their endowment policies as a quick way of realising capital.
If they are forced to do so, solicitors can surely offer the best advice by seeking a valuation from the traded endowment policy market place. Suitable policies should have run for a minimum of seven years and have a surrender value of at least £2,000.
David Arnold is manager of Absolute Assigned Policies.