Traded life policies (TLPs) and traded endowment policies (TEPs) are investment products that involve purchasing life insurance policies or endowment policies from the original policyholder, and then paying the policy premiums until the policy matures. These types of policies are commonly referred to as “second-hand” policies.
Short History of Traded Life Policies
Traded life policies in America
Traded life policies, also known as life settlements or viatical settlements, have a complex history in the United States. The concept of TLPs involves the sale of life insurance policies by their original owners to third-party investors. The original policyholders receive a lump sum payment in exchange for transferring the policy’s death benefit to the investor, who continues to pay the premiums until the insured person’s death. These settlements emerged in the 1970s during the AIDS epidemic.
Individuals with terminal illnesses sold their life insurance policies to access funds needed for medical care and other expenses, providing financial relief for terminally ill individuals and allowing investors to profit when the insured persons passed away.
Traded life policies in Singapore
Traded life policies in Singapore began to gain recognition in the early 2000s and continued to evolve, offering a range of investment opportunities. It attracted investors looking to diversify their portfolios. These expanded beyond traditional viatical settlements to include policies from individuals who were not terminally ill but wished to sell their life insurance policies for various reasons, including financial needs and changing circumstances.
When a policyholder decides to liquidate their life policy or endowment policy, they can do so through an individual or company that wants to buy the policy for resale. The intermediary usually offers to buy the policy at a higher price than the surrender value offered by the insurer and then resells it to another investor. Only existing policies purchased from the original policyholders are involved in this process, and no new policies are created.
TLPs and TEPs are not regulated by the Monetary Authority of Singapore (MAS), which means that intermediaries and distributors of these policies are not licensed by MAS. The maturity date of the investment may be uncertain, and investors cannot rely on laws administered by MAS to take action against any problems encountered during the investment process.
MAS does not oversee the sale, acquisition, or dissemination of Traded Life Policies (TLPs) and Traded Endowment Policies (TEPs). Consequently, any individual or company engaged in the purchase or distribution of these policies is not subject to regulation or licensing by MAS.
Presently, licensed life insurers in Singapore do not engage in the acquisition of policies from policyholders for subsequent resale, nor do they participate in the distribution of TLPs and TEPs. The TLPs and TEPs available for purchase in Singapore may either originate from domestic insurance providers or be policies obtained from other countries.
Before you purchase Traded Endowment Policies
Investors should carefully read and understand all the terms and conditions of any contractual document before buying a TLP or TEP. TLPs and TEPs have risks, including life extension, legal challenges, liquidity risk, credit risk, foreign exchange risk, and fraud risk. Investors should be aware of these risks before investing in TLPs or TEPs. The industry has grown over the years, offering opportunities for those seeking to invest in life insurance policies and providing an option for policyholders to access the cash value of their policies when needed.
There are a few pros of investing in traded endowment policies (TEPs) in Singapore.
- Potential for high returns: Traded endowment policies can offer higher returns than traditional savings accounts or investment products. This is because the underlying investments in the policy, such as stocks and bonds, can appreciate in value over time.
- Tax benefits: Traded endowment policies can offer tax benefits, such as tax-free withdrawals or capital gains tax relief. This can help to reduce the overall cost of investing.
- Liquidity: Traded endowment policies can be relatively liquid, meaning that they can be easily bought and sold. This can be a good option for investors who need to access their money quickly.
- Diversification: Traded endowment policies can offer diversification, which can help to reduce risk. This is because the underlying investments in the policy are spread across different asset classes.
However, it is important to note that there are also some risks associated with investing in TEPs.
- High fees: Traded endowment policies can have higher costs, which can eat into your returns.
- Complexity: Traded endowment policies can be complex products, which can make them difficult to understand. This can increase the risk of making bad investment decisions.
If you are considering investing in TEPs, it is important to do your research and understand the risks involved. You should also speak to a financial advisor to get their advice.
Here are some additional things to consider before investing in TEPs:
- Your investment goals: Are you investing for the short term or the long term?
- Your risk tolerance: How much risk are you comfortable taking?
- Your financial situation: Can you afford to lose money?
- Your time horizon: When do you need the money?
If you are not sure whether TEPs are right for you, it is best to speak to a financial advisor.
Implications for investors
Investors who purchase Traded Life Policies (TLPs) and Traded Endowment Policies (TEPs) cannot depend on regulations enforced by MAS (Monetary Authority of Singapore) to take action against either the intermediary who resold or bundled the policies or the distributor of the policies if they encounter any issues during the investment process.
A TLP or TEP investor is obligated to make policy premium payments, much like the original policy owner. In return, the insurance company is obliged to disburse benefits as stipulated in the policy contract to the investor when the policy matures or the insured individual passes away.
The responsibilities of the intermediary towards the investor are clearly outlined in the contract at the time of TLP or TEP purchase. It is imperative for investors to thoroughly review all the terms and conditions outlined in any contractual document and ensure they comprehend the legal consequences of entering into such an agreement. Investors should refrain from buying TLPs or TEPs if they harbor any uncertainty regarding the terms or implications of the contract.
Traded Endowment Policies for Sale
When a policyholder decides to cash in their life insurance or endowment policy, they have the option to sell it to an individual or company interested in acquiring policies for resale. Typically, these intermediaries offer a purchase price higher than the policy’s surrender value provided by the original insurer. Subsequently, the intermediary may resell the policy to another investor.
Throughout this process, only pre-existing policies bought from the original policyholders are involved, and no new life or endowment policies are created.
Upon the sale, both the ownership and benefits of the policy are transferred from the original policyholder to the investor. However, the status of the original life insured remains unchanged. The responsibility for paying the policy premium is transferred either to the investor or to an intermediary who has acquired and is holding the policies with the intention of selling them to another investor.
If you or someone you know is thinking of surrendering a life/endowment insurance policy, please don’t hesitate to contact us. We can provide you with a more lucrative solution compared to what the insurer is offering. Our efficient process ensures that you secure the highest trade value for your policies within just 24 hours and are pleased to offer a complimentary policy valuation service. Our dedicated team is committed to obtaining the most favorable value for your policy, providing you with the confidence that you’ve made a sound decision.
Upon accepting our offer, the next step involves completing the necessary paperwork at the insurer’s customer service office. Rest assured that you will receive prompt compensation for your policy assignment once all formalities are concluded.
