Resale endowment policies are turning heads; original policyholders avoid surrendering by selling the policy, and the new owner can collect the maturity payout in less time.
We are all familiar with endowment policies and how they are a relatively safe way to generate decent returns over time. Emphasis on time, think like a couple of years or even decades depending on the length of your policy term.
But did you know there’s another type of endowment policy that’s on the rise, one that lets you skip ahead instead of waiting eons for your policy to mature?
They are called resale endowment policies and you’ll find them on the secondhand insurance market.
What is a resale endowment policy?
A resale endowment policy is akin to buying a secondhand car. Instead of a brand new endowment plan in which you’re essentially starting from a clean slate, a resale endowment policy already has some mileage from the previous owner.
Here’s an example of how it works. Let’s say Susan bought a 25-year participating endowment plan, and she has held the policy for 15 years. One day she decides not to continue with the endowment policy. She has two options:
- Cancel the policy, pocket the surrender value and incur losses
- Sell it off to a service provider and potentially earn 5% to 20% more than the surrender value
Susan chooses the latter.
Through the same resale endowment provider, you can buy over Susan’s endowment policy — with 15 years already shaved off — and continue holding it to maturity for the next 10 years. Once it matures, both the guaranteed and non-guaranteed returns accumulated over the past 25 years is yours to enjoy.
4 reasons to buy a resale endowment policy
Here are the reasons why a resale endowment policy is a good fit for anyone’s financial portfolio.
#1: Shorter wait for maturity payout
From the example given above, you can reap the full maturity benefits of a 25-year endowment policy by only serving less than half of the policy term. One of endowment’s biggest drawback is its relatively long commitment period. It may feel like it could take forever to get to the finish line and get to the long-awaited rewards. With resale endowment policies, this wouldn’t pose much of a problem.
#2: Higher likelihood of high returns
A lot of the initial groundwork has been covered by the original policy holder. What this means is policy-related costs that could chip away at your returns have already been paid for, such as administration and insurance agent’s commission fees.
The resale policy has had some time to mature in the years prior. In addition, the value of the endowment policy has already snowballed over the years through the original policy holder as well, providing a higher likelihood of higher returns.
#3: Fuss-free transfer of ownership
Getting a resale endowment policy is a smooth affair, with minimal paperwork involved. Be prepared to fork out the initial sum to buy over the policy. Akin to the transfer of ownership, you’ll need to undergo an Absolute Assignment which reassigns the rights of the endowment policy over to you. Once that’s done, you’ll be the new owner of the endowment policy and will need to make the necessary premium payments directly to the insurer.
#4: You can sell back the resale endowment policy
Yes, if you’re wondering, there’s an exit button if you need it. That’s because there’s no limit to the number of times a policy’s ownership changes. If the endowment premiums are beginning to strain your finances or your income has taken a hit, you’re able to sell it back to the service provider you bought it from. However, keep in mind that the returns might be substantially less than what you could have received if you held it to maturity.
Conclusion: Should you then buy a resale endowment?
On one hand, there’s plenty of upsides to getting a resale endowment over a brand new one. If you love the idea of introducing a savings instrument in your financial portfolio that’s relatively low risk and able to generate returns without having to wait too long for the maturity payout, a resale endowment policy could be considered.
But on the other hand, you could only pick the policies that’s available on the resale market — without making any tweaks that could perhaps fit more seamlessly with your timeline or financial goals. You’re also relinquishing the life insurance coverage portion of your endowment as it will still be under the original owner. That being said, it's worth noting that even if the life assured (A.K.A. the original owner) passes on, the payout/benefits still belong to the new owner.
One last thing to note is that the resale endowment market is not currently regulated by the Monetary Authority of Singapore (MAS)... yet. As such, this leaves resale policyholders in a bit of a vulnerable state. Should you ever face any hiccups in your resale endowment transaction, you won’t be able to rely on MAS for help.
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