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Short Term Traded Endowment Policy

Thinking about investing in an endowment for the returns, but feel that an endowment’s investment timeline is too long for you? Then traded endowment policy may be what you need. Short term traded endowment policy offers you the best of both investment returns and short investment timeline.

What Is A Traded Endowment?

Traded endowment policy is a short term, high interest savings plan that you can buy over from a policyholder. As the existing policyholder has already held it for a couple of years, traded endowment is much closer to its maturity. Yet, at the same time, it lets you enjoy the same rate of return as what the existing policyholder enjoyed.

In short, a traded endowment offers better returns on your savings without having to be locked-in for the same period as a typical endowment policy.

Why Should You Buy Traded Endowment Policy?

Traded endowment policy offers 2.5% to 3.5% investment return for policies that are 1-5 years away from maturity. This is much higher than cash deposits in banks, fixed deposits and Singapore Savings Bond (SSB). At the same time, the investment horizon is also shorter and more flexible compared to typical saving products.

If you are looking for a short term investment, traded endowment policy should be in your watch list.

What Are The Obligations Involved When You Buy Traded Endowment Policy?

When you buy traded endowment policy, you need to consistently pay for the premiums as though you are the original policy owner. If you stop paying the premiums, the traded endowment policy will lapse, just like with any other insurance policies.

On the insurer side, they are also obligated to pay out the investment returns to you as though you are the original policy owner. Once the insured life passes on or if the traded endowment policy matures, the insurer will make the payout to you.

What Should You Look Out For When You Buy Traded Endowment Policy?

There are a few key factors to look out for when you buy traded endowment policy:

  • Maturity date
    • This indicates the maximum number of months/years you have to wait before you can get your investment return as a payout
  • Total funds input
    • This tells you how much funds you have to commit upfront as well as the monthly premium to invest in the traded endowment policy
  • Projected IRR
    • The projected IRR is an indication of the annualized investment returns you can get if you invest in the traded endowment policy
  • Projected maturity value
    • This indicates the projected amount you will receive when the traded endowment policy matures

Besides the factors listed above, you also need to consider how the traded endowment fits into your personal financial plan. For example, it needs to fit your savings goal, your affordability and personal cash flow.

Is It Legal To Invest In Traded Endowment Policy?

Investing in pre-loved endowment policy is perfectly legal. You are also legally protected by the contractual obligations of the intermediary that buys policies from policy holders and re-sells or packages the policies as traded endowment policy.

That said, intermediaries that distribute or buy/sell traded endowment policies are not regulated by MAS as there are currently no MAS administered regulations to govern the sale, purchase and distribution of traded endowment policies.

Is It Safe To Buy Traded Endowment Policy?

Traded endowment policy is also known as second-hand endowment. There’s always a negative connotation attached to the term second-hand. But you don’t have to worry about it as an investor because investing in a traded endowment policy is safe.

When the endowment policy is sold to you, you get both the ownership and benefits of the endowment policy transferred to you from the original owner.

Why Are Traded Endowment Policies Sold Away In The First Place?

Traded endowment policies are endowment policies that were given up by previous policyholders and sold to an intermediary. The intermediary like Purvis Capital, Rep Holdings, TES Invest and Conservational Capital then sells these traded endowment policies to investors.

Endowment policies are typically bought from previous policyholders that have met with some financial distress such as:

  • Loss of job
  • Reduction in income
  • Credit card debt
  • Mortgage debt
  • Divorce settlement

As such, they need to encash their endowment policy to settle their financial distress.

Do You Have To Worry About The Previous Policyholder’s Financial Distress?

When you buy a short term traded endowment policy, there is nothing to worry about.

  1. You won’t have anything to do with the previous policyholder’s financial distress.
  2. The full ownership of the policy is transferred to you, making a clean cut between the previous policyholder and the short term traded endowment policy.

 

Pros
  • Higher investment return with shorter duration, i.e. faster maturity
  • Guaranteed principal and interest
  • Offers diversification to your existing portfolio
Cons
  • Returns from investing yourself may be higher
  • Less flexibility in customizing endowment for your financial needs
  • Stigma against traded endowment policy because they are bought over from those in financial distress

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