Updated: Oct 26, 2021
Commonly known as a ‘second-hand’ endowment policy, a Traded Endowment Policy (TEP) is an endowment policy that has been sold by the original policy owner to an investor other than the insurer itself. The term ‘traded endowment’ however, is not commonly used or heard, or popular in the Singapore context.
There are a lot who-what-where-how question relating to TEP. So how does TEP works? It is when the policy holder decides to sell off his whole life plan or endowment policy for a higher price than the surrender value. Both the ownership and benefits of the policy are transferred from the original policy owner to the investor upon sale. Once the whole policy has been transferred over to the ‘new’ owner, they would be the one paying the premiums and receiving the payout upon death of the initial policy holder or policy matures. The new owner is obliged to pay the premiums. Similar to how insurance work, the policy would lapse when premiums are not paid.
Skip the long accumulation period and jump straight in with shorter maturity date (typically c. That sounds more appealing and is another option for those looking for short term investment with a high return. Moreover, endowment and life plans has a guaranteed principal and interest on top of the investment return.
Just like any other insurance, before jumping straight into buying something, evaluate if this would be in line with your goals and affordability.
When Gaius posed the question to the floor if they would get or sell such a policy, there were some mixed responses. Benjamin was in favor of it if he has debts to pay. It could be in the form of credit card debts, mortgage debts or even a loss of job. The trade-off? Having instant and more cash than the surrender value to fund current situation needs, for a policy where your life payout / surrender value is in the hand of someone else.
James on the other hand, had another outlook to this. To each his own, there is no right or wrong answer. It goes against his morals to be selling off his life insurance plan for other people to capitalize on the profits when he passes on. That is not to say Benjamin is wrong, but when put in a financial distress, we do the best we can at that point in time. If a client or a friend approach you to seek advice on the matter, it’s not something Gaius himself would do, let alone encourage. Ultimately at the end of the day, if you need money and run out of all options, this is another option to consider.
Though unregulated, if you are aggrieved by unfair practices, seek recourse from Consumer Protection (Fair Trading) Act (CPFTA). If you are still uncertain but would like to proceed, look out for intermediaries such as Rep Holdings, PolicyWoke, TES Pte Ltd etc.
Disclaimer: The information is meant purely for informational purposes and should not be relied upon as financial advice.