Surrender on trade-ins

By TOBY WALNE, CHIEF MONEY REPORTER
Updated: 19:00 EST, 15 April 2002

LIFE insurers have been brought to heel over the shabby deals that many offer customers who surrender with-profits policies.

The Financial Services Authority has ruled that all insurers must tell customers about the option to sell policies to specialist traders.

Many policyholders blindly accept the insurer's own surrender value, but selling policies on the open market is generally more lucrative. Companies that deal in traded endowment policies - Teps - buy traditional with-profits endowments, often taken out with a mortgage, with at least five years to run and a surrender value of £1,000 or more.

An endowment with a £10,000 surrender value can fetch an extra £1,500 this way. But too few sellers take advantage of the better deals offered by Tep traders.

Policies worth a total of £2 billion were surrendered to insurance companies last year while only £500 million- worth were sold on the second-hand endowment market.

Some insurers do tell customers about the Tep option when they ask for a surrender value, but the Financial Services Authority will make this compulsory next month.

Helen Gardner insists that the change is long overdue.

She made £3,000 more on her endowment policy by selling it to London Tep trader 1st Policy instead of surrendering it to the provider, Standard Life.

Sales rep Helen, 34, wanted to cash it in because she and husband Paul, a 35-year-old engineer, are buying a new house in Bristol and needed every penny they could raise.

She says: 'Our financial adviser told us not to accept the £17,000 offered by Standard Life, but to phone a number of Tep traders to find the best deal - and we ended up getting £20,060.'

But Helen, who has an 11-year-old daughter, Franchesca, is angry that Standard Life was not required to tell her that there were alternatives to surrendering the policy. She complains that if she had not seen a financial adviser, she would never have known that it was possible to earn more money elsewhere,

Tep traders say the stock market turmoil of recent times has boosted demand from investors for secondhand policies.

Buyers continue paying the premiums and collect yearly bonuses and the terminal bonus when a policy matures. But they do not not inherit any life insurance cover.

Brian Goldstein, deputy chairman of the Association of Policy Market Makers and director of Tep company Policy Portfolio in London, says: 'We are delighted about the new FSA rules, for they will tell more people that the second-hand market exists.

'There is certainly a growing demand for second-hand policies from investors because they look especially attractive at a time when stock markets are volatile or static.'

But Goldstein urges: 'If policyholders can afford it, it would usually make most sense for them to keep up the payments until their plan matures so they will qualify for all the bonuses, including the final or terminal one.'

ANOTHER option for holders who do not want to go on paying premiums is to make a plan paid-up - stopping the premiums and allowing the policy to run to maturity.

But check that any charges will not eat into the value of the policy.

Most independent financial advisers can offer deals for holders who want to sell policies.

Baronworth in Gants Hill, Essex, has a free service that sends customers' policy details to 16 marketmarkers to help get the best price. Teps traders do not buy unit-linked with-profits policies, however.

• For more information on Teps and traders, call the APMM on 020 7739 3949.