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What are Traded Endowment Policies (TEPs)? |
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There are five basic component parts
to a Traded Endowment Policy (TEP).
- Basic Sum Assured
- Attaching Bonuses
- Terminal Bonus
- Sales Price, and
- Future Premiums
Basic Sum Assured
This is the amount, which the Life Assurance
Company guarantees to pay out at maturity. This figure is declared
at the time the policy is originally taken out.
Attaching Bonuses
Each year, the Life Company declares a
bonus, and once it is declared it is guaranteed to be paid out at
maturity (in addition to the Basic Sum Assured). Once a bonus has
been declared in this way it is said to be "attaching" to
the policy. Current attaching bonuses are the total of the bonuses
that have been declared to date.
Terminal Bonus
When a policy reaches maturity, the Life
Company usually declares a final, "Terminal", bonus. This
is usually a quite significant figure and is designed to reflect the
policy's true worth at maturity. These three elements are the main
components of all endowment policies. The final two, Sales Price and
Future Premiums, come into play when a policy is available for purchase
on the second hand market. Sales Price is the amount you pay to TEPPCo
for the policy, while Future Premiums represents the premiums to be
paid until maturity. The Total Cost to the investor is the sum of
the sales price and future premiums. |
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