Purchasing a second-hand endowment policy essentially allows individuals to buy a pre-owned endowment plan at a discounted price. While it does offer certain benefits, it may not be the right type of purchase for everyone. Knowing what your savings goals are will ultimately help you decide if a second-hand endowment insurance (SHEP) policy is right for you.
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What Is a Second-Hand Endowment Policy?
A second-hand—or traded—endowment plan (aka a SHEP or TEP) is an endowment insurance policy that has been sold to a new individual before it reaches its maturity date. Instead of terminating a policy with their insurance provider, the original policyholder has the option to sell their endowment insurance plan through an individual or a company at a higher price than the surrender value to a new buyer. In the sale, the buyer gains ownership of the policy and must pay premiums to receive the subsequent benefits. However, the original owner will remain the life insured.
Second-hand policies have shorter maturity dates and can be appealing to people who are looking to skip the slow-growth stage of the first few years of an endowment policy. It is important to point out that the MAS does not regulate the sale, purchase, or distribution of TEPs, which means that any individual or company involved in purchasing or distributing these policies is not regulated or licensed by MAS.
Who Should Get A Second-Hand Endowment Policy?
With shorter maturity dates and potentially higher returns, TEPs could be a worthwhile purchase for certain individuals.
If you are looking for an endowment policy but you want higher than average returns in a shorter than average period of time, then a SHEP could be a good option to consider. Since you will be purchasing a plan well into its policy term, you will be skipping the slow growth portion and will enjoy the higher, compounded returns faster. SHEPs are also a good option if you are a relatively low-risk individual since endowment policies in general provide fairly stable returns and are similar in risk to savings accounts and fixed deposits. Despite this, there are still a few things you'll need to consider, such as the cost of the policy and the coverage provided.
On the other hand, if you are looking for a high-risk, high-reward type of investment, then a second-hand endowment policy may not be the best fit. For instance, people who are more risk-tolerant and are looking to invest rather than save may be better off investing in stocks Though the risk is higher due to market volatility, the long-term average stock market returns are 10-11% p.a., compared to the average endowment policy return of 1.5-4.0% p.a.
You may also not benefit from a second-hand endowment policy if you are looking for a long-term or flexible savings plan. As we've mentioned above, SHEPs are typically bought a few years before their maturity date, which means that they won't last long enough for people looking to put away funds for a long-term goal like retirement. You will also lose the opportunity to customise the plan you want for your needs since you will be limited to what's available on the market.
Lastly, endowment plans in general aren't a good fit for people who want access to their savings or have shifting savings priorities. Unlike opening a savings account, when you buy endowment policy from an insurer or on the second-hand market, you are signing a contract that the premiums you put in won't be touched until the maturity date.
Where To Buy a Second-Hand Endowment Plan
If you feel as though a second-hand endowment policy is a good investment and want to learn more about purchasing one, you can consider some of the companies below. As MAS does not regulate the sale, purchase, or distribution of TEPs, you will not be able to rely on laws administered by MAS should you encounter any problems with the purchasing process. However, you may seek recourse under the Consumer Protection (Fair Trading) Act (CPFTA). The CPFTA allows consumers aggrieved by unfair practices to pursue civil remedies before the courts.
- REPs Holdings
- Purvis Capital
- Conservation Capital
- Singapore Traded Endowment Policies Specialist (STEPS)
- TES Pte Ltd
SHEPs Can Be An Attractive Alternative, But Due Diligence is Still Advised
Ultimately, if you are interested in an endowment policy but don't want to wait the long years until your plan matures, then a second-hand endowment policy is a suitable choice for you. However, it is very important to know your current and prospective financial status before you purchase any long-term insurance policy as it will help you decide what plan is right for you. You should speak with a financial advisor to get a better understanding of how purchasing a second-hand endowment policy will impact your financial situation.