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Article Summary

1) What are resale endowment policies?

2) Benefits: Higher projected return + shorter time to maturity

3) Detriments: Not customizable, no insurance coverage

4) How to replicate the insurance coverage at lower cost

5) How to Buy: See our inventory of resale endowments

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The Main Takeaways

• Endowment policies are savings plans marketed by insurance companies as a conservative investment vehicle. In today’s market, a new policy has projected returns of around 1.5% to 3+% per year, depending on the no. of years. Note that returns are projected by the insurer and subject to change.
• Resale Endowment Policies are policies that have been sold by the original policy owner to an investor. We are selling endowment policies at 2+% to 5+% per year projected returns. Note that returns are projected by the insurer and subject to change.
• Benefits of buying Resale Endowment Policies: Higher returns, with shorter time to maturity.
• Downsides of buying Resale Endowment Policies: No insurance coverage. Insurance coverage can be replicated by separately buying a term life policy.
• How to buy Resale Endowment Policies: Take a look at our available inventory below and contact us at 8288 0681

Click here to look at our available inventory.

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1) What are resale endowment policies?

First, it’s best to explain what endowment policies are. Endowment policies are savings plans marketed by insurance companies as a conservative investment vehicle. It’s often used as a financial planning tool, to ensure that one has sufficient savings to finance a child’s education, or for one’s retirement. These policies also come with a small degree of insurance protection, such that the policy owner would be eligible to claim a payout from the insurer, in the event of death (and sometimes total permanent disability or terminal illness, depending on the specific policy).

Resale endowment policies, commonly known as “traded endowments” or “2nd hand endowments”, are policies that have been sold by the original policy owner to an investor.

Why would the original policy owner sell the policy to an investor?

• If a policy owner desires to terminate a policy prior to its maturity, the policy owner can surrender the policy back to the insurer.
• Alternatively, the policy owner may decide to sell the policy to an investor instead, especially if the investor is able to offer a higher price. After buying over the policy, the investor then takes on all future premium payment obligations but is also entitled to any future payouts from the policy.
• If you know someone who is keen on selling a policy, he/she can fill up this short form for a no obligation quote from us.

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2) Benefits: Higher projected returns + shorter time to maturity

Consider the illustration below. We use a hypothetical example of a policy that has an 8-year term, premiums payable of $10 annually, and a policy maturity value of $90.

• For a new policy (top half of illustration), the internal rate of return (IRR) would be 2.6% p.a.
• For a “resale” or “2nd hand” policy (bottom half of illustration), assuming the policy is purchased on year 5 for $50, the 2^nd hand policy owner not only benefits from a higher IRR of 3.7% p.a. but the time to the policy’s maturity is also shorter (only 4 years away).

Case study using actual examples:

We will first look at what a newly incepted 10-year endowment policy offers, and compare them with 2^nd hand endowment policies on sale.

For a newly incepted policy:

In the below image, we illustrate the cash flows of two endowment policies, one from NTUC Income and Prudential. These insurers were selected at random and the price quotes were obtained from compareFIRST, a joint collaboration between Monetary Authority of Singapore (MAS), Life Insurance Association Singapore (LIA), Consumers Association of Singapore (CASE) and MoneySense, and the pricing is based on a 32-year-old male who is a non-smoker.

For these new policies, the 10-year annualized projected return (IRR) are 1.94% p.a. and 2.67% p.a. for NTUC Gro Saver and Prudential PruActive Saver II respectively, based on an assumed 4.75% p.a. investment return on the insurers’ participating fund. This is indicated in the last row in yellow.

For a “resale” or “2nd hand” policy:

In contrast, the projected IRR for secondhand policies tend to be meaningfully higher. In the below table, we show 2^nd hand policies with approximately 10 years left till maturity, with their projected IRRs (rightmost column) that range between 4.0% – 4.3%. The projected return is 1.5x – 2.2x that of the newly incepted policies mentioned earlier!

These resale policies are examples of the inventory from our sister company Endowment Exchange. Do check this page for an updated inventory list.

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3) Detriments: Not customizable, no insurance coverage

Resale endowments are not customizable

If your intention is to finance a child’s college education 10 years from now, you can easily incept a new endowment policy with a policy term and investment amount that matches that specific financial goal.

However for resale endowments, as the policies have already been incepted, the policies’ maturity dates and upcoming premium payment schedules are fixed. Hence, you may have fewer choices available that matches your desired criteria (and this is highly dependent on the available inventory of the brokers that sell 2^nd hand policies).

Resale endowments do not provide insurance coverage to the new policy owner

In every endowment policy, there are two important “name” fields.

1. Policy Owner: The person who owns the life insurance contract and is entitled to any payouts from the policy. The policy owner has the right to borrow from the cash value of policy, reassign ownership of the policy (i.e. sell the policy to an investor), or surrender the policy back to the insurer.
2. Life Assured: The person whose life is covered by the insurance contract.

When the endowment policy is sold to an investor, only the “Policy Owner” is changed to the new owner. The “Life Assured” remains unchanged. This means that the investor’s life is not covered by this policy.

For many investors, the intention in buying a 2^nd hand endowment is for investment returns and NOT for the insurance component. If that’s the case, these investors would focus solely on the projected investment returns that may be derived from the policy, and whether it makes sense vs other types of investments.

However, for investors who do desire the insurance component, there are ways to replicate the insurance coverage offered by a newly incepted endowment policy, while still enjoying the higher projected returns and shorter time to maturity of a 2^nd hand endowment. We will discuss this in the next section.

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4) How to replicate the insurance coverage at lower cost

You can replicate the insurance coverage using a “term life policy”

For endowment policies, you can make an insurance claim in the event of death (or sometimes total permanent disability or terminal illness, depending on the specific policy) of the “life assured”.

The criteria to making an insurance claim for a term life policy is very similar. Hence, an investor of a resale endowment policy could potentially attempt to replicate the insurance coverage offered by a new policy, by buying a term life policy as well.

In the below image, we use the projected returns (IRR) from the earlier illustrated examples in Section 2, and include the cost to purchase of a new term life insurance policy (that covers the life of the policy owner). For the term life policy, we used a competitive price quote obtained from compareFIRST, and the pricing is based on a 32-year-old male who is a non-smoker.

We observe that for this specific scenario, buying a “2^nd hand endowment policy + new term life policy” offers a projected return in the low-4% p.a., and looks to be more cost-efficient than incepting a “new endowment policy”.

Assuming an investor bought both a 2nd hand endowment policy + new term life policy, and subsequently passes away, here’s what happens:

1. The 2nd hand endowment policy will be part of the estate. It can be willed to an intended beneficiary, similar to other types of investments.
2. The newly bought “term life policy” will pay out the death benefit.

Note: The attractiveness of 2^nd hand endowments depends on the prices set by the resale broker, and the cost of term insurance depends on specific factors such as age, whether you are a smoker etc.

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5) How to Buy: See our inventory of resale endowments

Link to our available inventory

Personally, we do see the allure of using 2nd hand policies as an investment tool. Consequently, we have set up our own resale broker called Endowment Exchange.

Click here to look at our available inventory.

The link has details on the individual policies including:

• The latest available benefit illustration provided by the insurer
• An illustration of the premiums payable through the life of the policy, with the projected maturity or surrender value.

The link is a permanent page that we’ll be updating going forward!

Here’s a summary of our March inventory

For ease, we’ve provided a screenshot of the inventory we currently have in March. For more details, do check out our permanent page (same link as above).

How to buy a policy

Once an investor has shortlisted policies that he/she is keen on, the process of buying a 2nd hand endowment policy is relatively straightforward thereafter. We will meet the buyer at the insurer’s office to execute the policy transfer, and the buyer will have the opportunity to reconfirm the policy’s terms with an independent insurance officer.

Should you have any enquiries on the above policies, do drop us a Whatsapp message at 82880681, or email [email protected] with the policy reference number. It will be our pleasure to guide you through the process.

Do note that we are not financial advisors, and will not be able to give opinions on which policies are “better”.  

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Separately, if you have a policy you’re looking to sell, fill up this short form for a no obligation quote!