t's that time of the year again when all the insurance companies start to publish their new bonus rates for the
forthcoming year. Endowment policyholders wait with baited breath to try to determine whether they should stick with their endowments and hope they recover or cut and run by cashing in their policy and realising the proceeds now.
Not so very long ago sticking with your endowment policy would have been considered the safest option, but in the current climate policyholders view holding on until maturity as something of a gamble. Five years of falling bonus rates have taken their toll on even the most hardened believers.
In the past, endowment policyholders have turned to the second-hand market as an exercise in damage limitation. Put simply, policyholders attempt to sell their policy on the open market rather than surrendering it to the life office - a process often referred to as 'cashing in your endowment'.
In recent years this market has been somewhat limited. Companies that traded in endowment policies accepted only a handful of life offices. Now it seems they have opened their floodgates to nearly all the major life offices and a number of the smaller ones.
This resurgence may seem strange, since bonus rates have been on a downward spiral for some time. This formidable recovery is largely due to policy traders or market makers, as they are known, unearthing an unlikely yet powerful catalyst.
The German connection
Market makers have managed to exploit a massive opportunity presented in Germany and neighbouring countries where huge investment funds see second-hand endowments as an integral part of their fund composition. Market makers in turn have set up exclusive agreements to supply these funds with wide selection of policies from different life offices.
The flip side of the coin is the re-birth of the traded endowment market - a lifeline to the many disillusioned policyholders in the UK. Increased demand means higher prices are being paid for endowment policies, which makes cashing in an endowment more appealing.
It should be pointed out that it is only with-profit policies that market makers are interested in purchasing. At present, there is no trading option for unit-linked policies.
The table below shows the companies whose policies a typical market maker would be interested in purchasing. The companies on the right represent life offices most market makers were previously unable to buy.
forthcoming year. Endowment policyholders wait with baited breath to try to determine whether they should stick with their endowments and hope they recover or cut and run by cashing in their policy and realising the proceeds now.
Not so very long ago sticking with your endowment policy would have been considered the safest option, but in the current climate policyholders view holding on until maturity as something of a gamble. Five years of falling bonus rates have taken their toll on even the most hardened believers.
In the past, endowment policyholders have turned to the second-hand market as an exercise in damage limitation. Put simply, policyholders attempt to sell their policy on the open market rather than surrendering it to the life office - a process often referred to as 'cashing in your endowment'.
In recent years this market has been somewhat limited. Companies that traded in endowment policies accepted only a handful of life offices. Now it seems they have opened their floodgates to nearly all the major life offices and a number of the smaller ones.
This resurgence may seem strange, since bonus rates have been on a downward spiral for some time. This formidable recovery is largely due to policy traders or market makers, as they are known, unearthing an unlikely yet powerful catalyst.
The German connection
Market makers have managed to exploit a massive opportunity presented in Germany and neighbouring countries where huge investment funds see second-hand endowments as an integral part of their fund composition. Market makers in turn have set up exclusive agreements to supply these funds with wide selection of policies from different life offices.
The flip side of the coin is the re-birth of the traded endowment market - a lifeline to the many disillusioned policyholders in the UK. Increased demand means higher prices are being paid for endowment policies, which makes cashing in an endowment more appealing.
It should be pointed out that it is only with-profit policies that market makers are interested in purchasing. At present, there is no trading option for unit-linked policies.
The table below shows the companies whose policies a typical market maker would be interested in purchasing. The companies on the right represent life offices most market makers were previously unable to buy.
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