This article first appeared on fundMyLife, the platform that connects you to the right advisers.
An endowment plan is a kind of policy where you contribute an amount of money over a fixed period of time. Upon maturity, you will obtain a sum of money which may or may not be more than what you put in over the entire time period.
In addition, this plan is commonly promoted as a way to save for specific life-stages. However, given the fact that you have to continuously pay the premium and surrendering the plan prematurely incurs a huge loss, this plan is a constant topic of debate and discussion.
Earlier on, we wrote about what to do if you think your endowment plan might be a mistake. One of the things you can do is to sell the endowment plan to a third-party investor. In this article, fundMyLife discusses the pros and cons of selling your endowment plan.
Pros Of Selling Your Endowment Plan
#1 Better Cash Flow
As mentioned, endowment plans require you to stay committed over a period of time. Typically, this can range between 5 to 20 years.
Liquidity is an issue since your money is locked up in the plan. Some endowment plans have a timed payout structure that provides flexibility to policyholders. However, it becomes more stressful when you have unexpected episodes in your life that requires more liquid cash. Furthermore, over time you might be more financially savvy and you are confident that you can do better investing the money elsewhere.
By selling your endowment plan, the most obvious upside is that you immediately free up a sum of money that was put into the plan. In addition, you no longer have to commit to the usual monthly payments. This frees up your money for either other uses, or you can redirect the money to other forms of investments.
#2 More Money Obtained Compared To Surrendering
Suppose you can no longer afford the monthly payments, paying the premiums becomes a chore and you lose your peace of mind. If you stop payment, the policy lapses after a while. A premium holiday or a policy loan may alleviate the cash flow problem for the time being but will not solve things in the long run. Furthermore, doing these short-term measures will decrease the payout upon maturity regardless.
Typically, when you have no other choice, you can opt to surrender your policy for a sum of money back, as shown by the Benefit Illustration. However, surrendering your policy often nets an abysmal amount compared to what you have put into the premium so far. Instead, by selling your policy, you may obtain 5-20% more from the third-party companies compared to surrendering it alone.
Cons Of Selling Your Endowment Plan
#1 Loss Of Protection And Benefits
Endowments generally come bundled with a form of insurance coverage. There are plans that add that you do not require any medical check-up as well. If you purchased an endowment with death, terminal illness, or total disability protection, selling your endowment plan means you will lose that benefit.
However, if you were already adequately insured by other insurance plans, you should be fine. That said, if the endowment was all you have, it is wise to obtain low-cost protection, e.g., term policy.
#2 Readjustment Of Your Financial Goals
Ideally, when you purchased the endowment, it was meant for a particular financial goal – retirement, education for the children, or even a second property. However, once you sell the endowment policy, it implies that the journey to what you were aiming for has taken a short detour. As such, it is prudent to discuss your readjusted financial goals with a trustworthy and experienced financial adviser.
On the other hand, given how rampant endowment plans are sold, chances are that you might have unwittingly purchased this without knowing why. All the more it is important to revisit the financial conversation with someone else more trustworthy after selling your endowment plan.
Where To Sell Your Endowment Plans
Wondering where you can sell your endowment plans? Here are some of the companies that can buy them:
- REPs Holdings
- Purvis Capital
- Conservation Capital
- First Grand Capital
It’s useful to get the latest information of your policy to get the surrender value so that you can get quotes from those companies. Note that these companies usually buy plans which are close to maturity, e.g., a 20-year plan with 5 years to go. However, it is still worth inquiring to see if you qualify – our research shows that the companies do buy them early as well. Another thing to note is that endowment plans paid for using CPF or SRS are not eligible for selling.