Endowment policies are a type of insurance policy designed to help people save money over the long term. They are commonly referred to as “savings plans,” but they are not the same as a bank savings account. If you stop depositing money (paying premiums) during the policy term or withdraw your account in full before the stipulated number of years has passed, you will lose a portion of the funds you have put in. When you surrender your policy, you will only get back the “surrender value,” which is a portion of the premiums you’ve paid to date. Surrendering your policy early will cause you to lose money, so it’s best to avoid it if possible.
However, there is an alternative to surrendering your policy: selling it to a third-party investor. A third-party investor can offer a higher payout for your immature endowment plan that is more than the surrender value offered by your insurer. This way, you can recoup a greater portion of your loss. You can search online for “resale endowment policy” to find vendors who offer no-obligation, no-cost quotations to help you decide who to sell your policy to.
It’s important to note that holding your endowment policy to maturity doesn’t guarantee that you’ll make a profit or even break even. Your endowment plan returns comprise a “guaranteed” and a “non-guaranteed” payout. The “guaranteed” payout is usually lower than the sum total of your paid-up premiums, whereas the “non-guaranteed” payout is meant to make up for the remainder, plus profits. Because a portion of your returns is not guaranteed, you may end up getting back less money than what you paid in total, especially in the earlier years of the policy.
When you sell your endowment plan, your policy is transferred to the party you sold it to. This means that while you no longer have to continue paying the policy premiums, you will also lose any coverage or benefits that were included in your endowment plan. For this reason, you should make sure you have adequate protection before selling your endowment plan.
It’s always best to maintain your endowment plan if possible. However, if you can no longer continue paying your premiums, selling your policy to a third-party resale endowment provider like CapitaSafe can help you recoup a greater portion of your loss than surrendering it to your insurer.
Resale/traded life insurance policies(TLPs) and resale/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 or the life insured passes away. These types of policies are commonly referred to as “second-hand” policies.
When a policyholder decides to terminate their life policy or endowment policy, they can do so through an individual or a resale insurance brokerage company that wants to buy the policy for investment reasons. The intermediary usually offers to buy the policy at a higher price than the surrender value offered by the insurer. The policyholder will benefit by selling his policy as he will exit with more money. As for the resale insurance brokerage company, they will service the policy to its maturity or resells it to another investor. Only existing policies purchased from the original policyholders are involved in the 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. Investors who buy TLPs and TEPs are obligated to pay the policy premiums until the policy matures or the life insured passes away.
If you or someone you know is thinking of giving up a life insurance/endowment policy, please do not hesitate to contact us. At CapitaSafe, we pay Higher and Faster if you are planning to liquidate and cash out on your policies.
Besides buying insurance policies, you are able to sell or surrender your insurance policies as well. There are certain situations that you might encounter in your life that may require you to terminate your insurance policy.
For instance, you might suddenly need some extra cash or are not financially able to continue to pay for your policy. In other circumstances, you may have to deal with situations such as divorce or getting laid off from your job. These situations might leave you with no choice but to give up your policy.
There are generally 2 ways to terminate or discontinue your insurance policy:
- Surrender your insurance policy back to the insurer
- Sell your insurance policy
1) Surrendering your insurance policy
Sometimes, life can be unpredictable. For whatever reason, you might get placed in difficult situations that will give you no choice but to surrender or terminate your insurance policy. However, surrendering your insurance policy is not the way to get the highest cash value from it.
What happens when you surrender your insurance policy
When you surrender a Life insurance policy, it can go one of two ways:
1. Your policy is a Participating policy
In this situation, your final cash value will be calculated based on the number of years that have passed since you purchased the policy. This is called a surrender value and all individual policies have their own surrender value. This surrender value is made up of a Guaranteed and Non-Guaranteed cash value.
2. Your policy is a Non-Participating policy
In this situation, there is no cash value. If the premium is already paid for the remainder of the year, there is use in surrendering or terminating the policy. Just let it continue until premium payment is required. By not paying the additional premiums, the policy will lapse and be invalid on its own when the premium is due again.
Once you have cashed out on your policy, you no longer have any future financial benefit or insurance coverage that the policy would have provided. After it is surrendered, you will have no relations to it whatsoever. Generally, the surrender or termination of a life insurance policy before its maturity will result in a financial loss.
Surrendering your policy involves you directly terminating your policy with your insurance company, leaving you without any benefits. You will, however, receive a sum of money as you would from selling, depending on the policy type.
2) Selling your insurance policy
When you sell your insurance policy, the recipient of your insurance policy will obtain all future rights and benefits from the insurance policy. In return, you will get financial compensations that are higher than the surrender value of the insurance policy. You will no longer have any associations with that particular policy anymore.
Selling your insurance policy will generally yield higher financial returns compared to surrendering it. The act of selling your insurance policy is also called an absolute assignment.
Absolute Assignment
An absolute assignment is a legal transfer of all rights and benefits of an insurance policy from the current policy owner (Assignor) to the new policy owner (Assignee). Thus, instead of surrendering the policy for the cash value, you can transfer it to someone else to take over your policy.
Selling your insurance policy via Absolute Assignment
The process requires the Assignee to make a higher offer than the amount the Assignor would receive if they would surrender the policy to the insurance company. Financially, the Assignor will receive greater benefits (More cash) from an absolute assignment compared to a surrender. Here’s how it would look:
Assignor (You) – Gets a higher cash value than what the insurance company would have paid you when the insurance policy is surrendered to them.
Assignee (CapitaSafe) – May continue with the policy until maturity or resell the policy to another buyer.
When deciding if you should sell your insurance policy, these are the pros and cons you should keep in mind:
Pros of selling your insurance policy
- Higher cash value compared to surrendering your insurance policy.
- Upfront payment (cash or cheque).
- The overall process is relatively easy and quick.
Cons of selling your insurance policy
- Loss of insurance coverage after the policy is transferred.
- If the policy being sold is a life, endowment, or retirement policy, a third party may benefit from your death, subject to certain conditions.
What insurance policies can be sold?
Typically, endowment and whole-life policies can be sold as they are assignable. Endowment policies are also known as Insurance Savings Plans. A policyholder typically pays a monthly or yearly fixed sum, until the policy ends. If the policyholder outlives the policy, they get the money back. If not, their dependents will get it.
On the other hand, Whole life policies are designed to provide coverage for the policyholder’s dependants after their death, usually in the form of fixed payouts. These are the most commonly accepted life insurance policies that can be sold:
- Regular pay Endowment Policy
- Limited pay Endowment Policy
- Regular pay Whole Life Policy
- Limited Pay Whole Life Policy
- Insurance policies with surrender values
A life insurance policy with a policy loan taken or premium payment that has already lapsed may also still be sold.
How old does the insurance policy have to be before selling it?
In the case of endowment policies, they are more attractive when they have been held for a longer period, at least 1/3rd of its duration. However, some buyers might be interested to take over a newer policy if it is:
- Limited pay (e.g. the premium payments are front-loaded to the first 5 to 10 years of the policy’s life, for a 20-year policy)
- Single premium (i.e. the premium payment was made in a lump sum at inception).
Is my insurance policy still vendible if I missed out on premium payments?
In this case, it heavily depends on the extent to which these payments have been defaulted, such as the length of the period of default and the amount overdue.
Typically, there is a grace period for insurance policies of up to 30 days to make your payment from the last missed payment due date. If you still missed the payment after this grace period, your policy may lapse. Third-Party Insurance brokers like CapitaSafe do buy-in policies that have lapsed or have been converted to paid-up insurance/Extended Term Insurance from non-payment of premiums. We will have to reinstate the policy to its original form by paying up the outstanding premiums, subject to the terms and conditions of the insurer’s contract and window period.
That being said, in the situation that your policy has sufficient cash value from an Automatic Premium Loan (taken by the insurer against the cash value), your policy will not have been terminated. This is when you will most likely be able to sell your insurance policy. The missed out payments will probably be taken into consideration when the person purchasing your policy makes a valuation, which would result in a lower amount for you.
How do I sell my insurance policy?
You may be thinking that you need to go to your insurance company to sell your policy, but that will only be needed later on in the process. The first thing you should do is obtain a valuation from us. The entire process of selling your insurance policy will look something like this:
1. Provide your policy information
Send in the relevant information for policy valuation. The insurance policy and its benefit illustration are the most important pieces of documents required for valuation. They would include information such as the start and maturity date, premiums, and surrender value. You do not have to pay anything for valuating your policy with us.
2. We will give our offer
We will make you an offer usually within 24 hours after the valuation. You can choose to proceed with the sale anytime soon after that.
3. Meet at insurer to transfer
The transfer of policy ownership will take place directly at the insurance company and can be completed in just 30 minutes. Once this is done, you will no longer have any outstanding liabilities under the policy.
4. Payment made to you on the spot
After the necessary paperwork are completed and submitted, you could expect to receive immediate payment from us either in cash via paynow or cheque.
In Conclusion
There are times when it would be most appropriate to surrender or sell your life insurance, here are some situations in which it might make sense to do so.
1. A better deal is available
Although life insurance may rise as you age or you might develop new health issues, there’s a possibility that you’re able to qualify for more affordable policies now as opposed to when you first took your current one. For instance, your health might have improved significantly since then because you’re taking better care of yourself now like deciding to quit smoking. If this is the case, it could be worth your time and money to look around for better deals. Or as new plans are available in the market that fits your life plans better.
2. You aren’t able to pay the premiums
Permanent life insurance is much more expensive than term life insurance. If you can’t keep up with the premiums, you might be better off with a cheaper term life policy.
3. You no longer need life insurance
In cases where you find yourself no longer seeing any benefits of life insurance coverage, such as there is no one financially dependent on you anymore, it would make sense to surrender
your policy.
4. You are desperately in need of a large amount of cash
If you have a major expense to cover or maybe a better investment opportunity but don’t have the cash on hand, surrendering a cash-value life insurance policy might be a good choice, especially if the above situation is also true.
What should I take note of?
When you surrender your policy to your insurance company, the money might take 7 to 10 days to be returned to you. When you sell your insurance policy, your payment will be made either through cheque or cash once the deal of the absolute assignment is complete. If you are unsure of how to go about either process, it’s best not to do it by yourself. Seek out professional advice to ensure that everything goes smoothly.
You might also want to consider that you will be underinsured once you lose your policy. You may consider taking on short-term fixed policies such as term insurance to protect yourself for the time being. Policies like this have no cash values and financial returns, therefore, the premiums are more affordable so you can still stay protected while you get back on your feet.
Urgent times will call for quick decisions, however, you must always keep in mind the pros and cons of both selling and surrendering your insurance policy and the benefits of your current policy, before making a decision to go with either.
If you or someone you know is thinking of giving up a life insurance/endowment policy, please do not hesitate to contact us. At CapitaSafe, we pay Higher and Faster if you are planning to liquidate and cash out on your policies.
When you are in need of quick cash, taking a loan on your life insurance policy can be a good option. It can give you money in a hurry, which can help you pay off your debts or pay for sudden expenses. But before you go ahead with the loan, it’s important to consider the following factors:
- Interest rates: You should understand the interest rate on the loan you’re considering and how it compares to other loan options. Insurance policy loans often have lower interest rates than other types of loans, but it’s still important to compare rates to make sure you’re getting a good deal.
- Repayment terms: Make sure you understand the repayment terms of the loan. How much time do you have to repay the loan? What happens if you can’t make payments on time?
- Impact on the policy: Taking a loan on your insurance policy will reduce the death benefit payable to your beneficiaries, and may also reduce the cash value of the policy. You should consider the impact of this on your overall financial plan and your beneficiaries’ needs.
- Alternative options: Before taking a loan on your insurance policy, consider other options for accessing funds, such as a home equity loan, personal loan, or credit card. These options may have higher interest rates, but they may also offer more flexibility in terms of repayment and may not impact your insurance policy.
Types of Insurance Policy Loan
Voluntary Policy Loan
A voluntary policy loan is a type of loan that is available to policyholders who have a cash-value life insurance policy. Cash-value life insurance policies, such as whole life or endowment insurance policies, build up a cash value over time as premiums are paid. This cash value can be accessed through a voluntary policy loan.
When a policyholder takes out a voluntary policy loan, they are essentially borrowing money from the cash value of their life insurance policy. The loan is secured by the cash value of the policy, which serves as collateral. The policyholder can use the loan for any purpose they choose, such as paying for unexpected expenses or making a large purchase.
The loan must be repaid with interest, and the interest rate on a voluntary policy loan is typically lower than other types of loans, such as credit cards or personal loans. The policyholder can choose to repay the loan in a lump sum or through regular payments over time.
It’s important to note that if the loan is not repaid, it will reduce the death benefit payable to the policyholder’s beneficiaries. Additionally, if the policyholder passes away before the loan is repaid, the outstanding balance of the loan will be deducted from the death benefit.
Overall, a voluntary policy loan can be a good option for policyholders who need access to funds and have a cash-value life insurance policy. However, it’s important to carefully consider the terms of the loan and the impact it may have on the policy’s cash value and death benefit before taking out a loan.
Automatic Policy Loan
An automatic policy loan is a loan that is taken out against the cash value of a life insurance policy without the policyholder having to take any action to initiate the loan. With an automatic policy loan, the policy loan is automatically initiated when the policy’s cash value reaches a certain level, as specified in the policy’s terms and conditions. This takes place automatically if you don’t pay your premium by the end of the policy’s grace period, the insurer may automatically give you a policy loan. Your insurance policy must have enough cash value to qualify for the loan, and in that case, the loan amount will equal the unpaid premium.
The advantage of an automatic policy loan is that it can provide a source of funds for the policyholder without requiring them to take any action or go through a loan application process. However, it’s important to understand the terms and conditions of the automatic policy loan, including the interest rate, repayment terms, and impact on the policy’s cash value and death benefit.
Policyholders should also be aware that an automatic policy loan can reduce the cash value of the policy, which can affect the policy’s ability to earn dividends or provide future benefits. Additionally, if the loan is not repaid, it can reduce the death benefit payable to the policyholder’s beneficiaries.
Where do I apply for a policy loan?
You can apply for a policy loan by contacting your insurance company or agent, or by filling out an online form.
- AIA Policy Loan Agreement Form
https://www.aia.com.sg/content/dam/sg-wise/en/docs/help-support/forms/policy-loan-form.pdf - Prudential Policy Loan Agreement Form
https://www.prudential.com.sg/~/media/prudential/PDF/applicationforms/App_for_Policy_Loan_Form.pdf - Great Eastern Policy Loan Information and Form
https://www.greateasternlife.com/sg/en/customer-services/loans/take-a-policy-loan.html
https://www.greateasternlife.com/content/dam/great-eastern/sg/homepage/personal-insurance/get-help/customer-service/multiple-policies-loan.pdf - NTUC Policy Loan Form
https://www.income.com.sg/forms/policy-conditions/life-insurance-policy-loan-agreement - Manulife Policy Loan Information and Form
https://www.manulife.com.sg/en/self-serve/policy-payout/apply-for-policy-loan.html
https://www.manulife.com.sg/content/dam/insurance/sg/resources/Policy_Loan_Form.pdf
Should I take a loan on my insurance policy or surrender the policy
Deciding whether to take a loan on your insurance policy or surrender depends on your individual financial situation and needs. Here are some factors to consider:
- Need for larger amount of cash: If you need cash immediately, surrendering your policy may be a better option than taking a loan. Surrendering your policy can provide you with a lump sum of cash, while taking a loan may only provide you with a portion of the cash value.
- Interest rates and repayment terms: Insurance policy loans typically have lower interest rates than other types of loans, such as credit cards or personal loans. However, taking a loan means you’ll need to repay the loan with interest. If you can’t afford to make the loan payments, surrendering your policy may be a better option.
- Impact on policy value: Taking a loan on your insurance policy can reduce the cash value and death benefit of the policy. Surrendering your policy will result in the loss of the death benefit and any future benefits that may have been paid out. You should weigh the loss of these benefits against the immediate need for cash.
- Long-term financial goals: Consider your long-term financial goals when deciding whether to take a loan or surrender your policy. If you need the policy’s death benefit for your beneficiaries, surrendering the policy may not be the best option. However, if you have other sources of income or insurance coverage, surrendering the policy may make sense.
Overall, the decision to take a loan on your insurance policy or surrender depends on your individual financial needs and goals. If you’re considering surrendering your life insurance policy, we can help. At CapitaSafe, we’ll work with you to sell your policy instead, so you can get back the proceeds of your policy at a higher value than traditionally surrendering it to your insurer.