When a policyholder decides to liquidate their endowment or life policy, they have the option to sell it to an individual or company instead of surrendering it to the insurer. These intermediaries often offer a higher payout than the surrender value provided by the insurance company.
Once an investor purchases the policy, they assume the responsibility of paying the premiums until the policy matures or, in the case of a TLP, until the insured person passes away.
Absolute Assignment Process
The transfer of ownership in TEPs and TLPs is carried out through a legal mechanism called absolute assignment, governed by the Policies of Assurance Act (Chapter 392). This process is commonly used in situations such as gifting policies from parents to children or donating policies to charities. It also enables the buying and selling of policies between investors and policyholders.
How TLPs and TEPs Work
A TLP is a life insurance policy that has been sold by the original policyholder to an investor. Similarly, a TEP is an endowment policy that has been transferred to an investor. Since these policies have already been issued by an insurance company, no new policies are created in the process. Instead, ownership and benefits are transferred to the new investor while the insured individual remains unchanged.
When a policyholder decides to sell their life or endowment policy, an intermediary—either an individual or a company—may offer to buy it for resale. Typically, this price is higher than the surrender value offered by the insurer. The intermediary may then resell the policy to another investor.
Once the investor purchases the policy, they assume the responsibility of paying the premiums until it matures or, in the case of a TLP, until the insured person passes away.
Why Invest in Traded Endowments?
Investing in traded endowments comes with several advantages:
- Issued by Reputable Institutions: These policies originate from well-established Singaporean insurance companies governed by MAS. They are typically covered under the Policy Owners’ Protection (PPF) Scheme, offering additional security.
- Potentially Higher Returns: TEPs often offer annualized returns above 4%, which can be more attractive than fixed deposits, new endowment plans, or even Treasury bills.
- Shorter Maturity Periods: Investors can purchase policies with shorter remaining terms, such as three to six years, providing greater flexibility.
- Lower Distribution Costs: Unlike new endowment policies, which involve high front-loaded commissions, TEPs help investors avoid these costs.
- No Medical Examination Required: Unlike traditional insurance policies, buying a TEP does not require a health check or medical underwriting.
- No Age Restrictions: There are no age limits for investors, making TEPs accessible to a wider group of individuals looking for stable returns.
Regulation and Investor Considerations
MAS does not regulate the sale, purchase, or distribution of TLPs and TEPs. This means that individuals or companies involved in buying and distributing these policies are not licensed or supervised by MAS. Currently, registered life insurers in Singapore do not buy policies from policyholders for resale and do not distribute TLPs or TEPs. The policies sold in Singapore may originate from local insurers or have been acquired from other countries.
Since these transactions are unregulated, investors cannot rely on MAS-administered laws for protection. If issues arise, legal recourse against intermediaries or distributors may be limited. Investors must continue paying the policy premiums just as the original policyholder would, and the insurance company will pay out the benefits based on the policy contract terms when the policy matures or the insured passes away.
To protect themselves, investors should carefully read all contract terms and conditions before committing to a purchase. If any part of the agreement is unclear, they should seek clarification before proceeding. Although the Consumer Protection (Fair Trading) Act (CPFTA) provides some avenues for legal action against unfair practices, MAS strongly encourages investors to deal only with regulated entities.
Traded Endowments and Life Policies can be an attractive alternative investment option, offering competitive returns and shorter maturity periods compared to traditional insurance products. However, they also come with unique risks, particularly in terms of regulatory oversight, liquidity, and legal complexities. Investors should conduct thorough due diligence, understand the obligations involved, and consult a trusted financial advisor before making a decision. For those interested in exploring available Resale Endowment Plans, real-time listings are available to help investors find policies that align with their financial objectives.
Disclaimer
Every effort has been made to ensure the accuracy of the information provided, but no liability will be accepted for any loss or inconvenience caused by errors or omissions. The information and opinions presented are offered in good faith and based on sources considered reliable; however, no guarantees are made regarding their accuracy, completeness, or correctness. The author and publisher bear no responsibility for any losses or expenses arising from investment decisions made by the reader.
