Endowment insurance provides protection coverage as well as investment returns to help you save towards a specific financial goal in the future, such as sending your child to university overseas. However, in the face of financial uncertainty like job loss or unforeseen medical expenses, it’s natural to dip into your savings account. But that’s not your only option; in fact, you can access funds from your endowment policy. Read ahead to understand your options as well as weigh the benefits and drawbacks of each one.
Borrow Cash From Your Endowment Policy
When you need to access cash, borrowing money from your endowment policy can be an easy and quick way to help ease an immediate financial burden. A policy loan is typically issued by an insurance company by utilising the cash value of your insurance policy as collateral for the loan. There are a few benefits of policy loans. First, even though this loan tends to charge a higher interest rate of 6% on average as compared to bank loans, there are no prerequisite requirements needed. Secondly, this allows you to borrow money even when your unsecured debt is already too big to allow you to borrow from typical lenders. However on the flipside, the loan amount is limited by the cash value of your existing policy. Furthermore, you need to pay at least the interest on the amount borrowed because it could cause your policy to lapse if left unchecked.
Withdraw Cash From Your Endowment Policy
Some endowment policies offer cash benefit options, which are payable at regular intervals during the term of the policy. Depending on the options you have chosen at the start, you can choose to either withdraw the amount, use it to pay for your premium or simply keep it in your account to earn interest. Though the amount might be limited, this portion can usually be withdrawn once you receive the cash benefits, and since it's already your money, there's no interest cost associated with this emergency fund. Also, it's important to note that withdrawal can only be done during the policy term period even though such a request typically takes about one working day to process, and therefore won't be ideal if you need cash immediately.
Surrender Your Endowment Policy
Surrendering your endowment policy should be the last resort. Of course, there is the immediate benefit of receiving full cash value of the policy, minus the surrender charge. But the downsides of surrendering your endowment policy outweigh the short-term benefit of having extra cash in your pocket. Once you surrender the policy, you’ll need to pay taxes on any gains earned from the cash value portion of the endowment policy. In addition, you’ll be giving up your coverage as surrendering the policy essentially terminates it. Lastly, surrender charges can be quite steep, which could wipe out a sizable portion of the cash value.
Sell Your Endowment Policy
In cases where the immediate need for cash outshine the benefits of holding onto your policy, selling the endowment policy could be the right choice. You are likely to earn more than the cash value of your policy by selling it to a third party like REPs Holdings. This is completed through a process called Absolute Assignment, where the third party pays you a lump sum that is higher than the surrendered cash value. While the amount you’ll receive can vary, the benefits will certainly be greater than if you were to surrender your endowment policy. As an additional benefit, there are absolutely no fees involved when you sell the endowment policy. In other words, the end result will garner a positive cash flow.
Ready To Sell Your Endowment Policy?
Deciding whether to surrender or sell your endowment policy is challenging. As you learn about your options, speak with an endowment policy adviser from REPs Holdings. For over 11 years, their team of experts have helped hundreds of people just like you earn a positive return on their endowment policy. Whether you’re seeking personalised advice or want to understand how much you could earn from selling your endowment policy, contact +65 6221 4771 or [email protected] for a free consultation. If you purchased your endowment policy to create a financial safety net, consider your options carefully as there is no need to jeopardise your long-term goals by terminating your policy.