Before You Surrender Your Insurance Policy, Read This

Buying a life insurance policy is one of the best ways of securing your family’s financial future. Even if you are no longer there to provide for them, the insurance payout ensures that your loved ones do not need to worry about short term financial needs.

A life insurance policy is an excellent financial planning tool that can help you to meet your financial goals. For instance, an endowment policy can provide the funds that you need in ten or 15 years for your child’s higher education, while providing you with some insurance coverage.

A whole life insurance policy offers an important dual purpose, providing payouts for the critical illness treatment fees, and providing your loved ones with a cash payout as part of your legacy for them.

As the years go by, there is a possibility that your financial needs undergo a change. You might want to slow your pace of life, you might realise that you may have overstretched your financial means by paying for those unnecessary high premium insurance policies that you bought.

You may also decide to allocate your funds into other financial instruments, instead of financing your endowment policy.

In these situations, many policyholders take the traditional approach of going to their insurance company and surrendering their insurance policy for the surrender value.

According to MAS’ latest insurance statistics for 2016, more people opt to surrender their insurance policies than ever before.

Source: MAS

In 2016, insurance policies worth over $1.5 billion were surrendered, 27% higher than the $1.2 billion worth surrendered in 2015, and a whopping 70% increase over the figures seen in 2012.

 

So what do you get when you surrender your insurance policy?

Depending on the policy type, you may or may not be entitled to any cash (surrender value).

Source: MoneySense

From the table above, it shows that whole life insurance policies and endowment policies are the only two types of policies where you stand to regain a cash value if you surrender it, though that amount is also dependent on whether the insurance company has been declaring bonuses over the years and there are no other excess riders attached to the primary policy.

While surrendering your policy can provide you with the cash that you need in many instances, it may not be the most financially prudent step that you can take.

If you want to discontinue your insurance, you need not surrender it to the insurer. Since you hold the rights to your policy, you also have the option of selling your insurance policy to an investor.

 

Why you should choose selling over surrendering

Surrendering your policy to the insurance company may get lower returns. This is especially true if you decide to surrender in the early years of the policy.

Insurance companies structure their policies in a manner that the accumulated value increases during the later years. Why do they follow this practice? That’s their way of keeping policyholders committed to paying their insurance premiums for as long as possible.

Selling your policy to another investor instead of to the insurance firm provides you with an option that can give you more money. You can choose to deal with an investor directly or even go through an intermediary.

“In developed markets like United States, United Kingdom and Germany, the buying and selling of insurance policies has been a common practice for decades,” explained Felix Ng, founder of AssureAsia.com, a Singapore-based online marketplace for second-hand policies. “Rather than just get a cash value, policy-owners in Singapore should consider to sell to a third party.”

 

Which are the policies that you can sell?

For obvious reasons relating to the cash or surrender value of the policy, you are able to sell both whole life insurance and endowment plans. Any policy that receives a bonus each year from the life insurance company is eligible for sale. Both participating and non-participating policies with a cash value also fall into this category.

What if you have not paid your insurance premiums for some time? Can you still sell your policy? This question often confuses policyholders. But they need not be worried. As long as it is a whole life insurance policy or an annuity, it can be sold.

Eligible insurance policies issued by the following companies can be sold:

• AIA

• NTUC Income

• Prudential

• Manulife

• Great Eastern

• Overseas Assurance Company

• AXA

• Aviva

• Tokio Marine

In fact, you can even sell your policy if you have lost your original policy document. All that you have to do is to approach the insurance company for a duplicate. Even this may not be necessary if you can access the required details on the website of the insurer.

 

How do I sell my insurance policy?

There are a number of brokers in Singapore that are willing to purchase your policy on your behalf, though you will not have any control over the price that is offered for your policy.

If you prefer to negotiate for the best price for your policy on your own, then AssureAsia might be a better option. AssureAsia.com is Singapore’s first and only online marketplace for buying and selling insurance policies in Singapore.

 

The procedure is absolutely straightforward and uncomplicated. Just follow these steps.

• Register yourself with AssureAsia.com. This involves keying in some basic details about yourself, and performing a simple verification of your email credentials.

• Once you have successfully logged in, you’ll be able to enter your policy details into the Policy Manager (above). You need not sell your policy at this stage.

• When you decide to go ahead with the sale, you will be asked to provide certain information and documents.

• That’s all that you need to do. AssureAsia.com will review your policy and if it is eligible for sale, it will be listed online so that third parties can view the particulars.

• Interested buyers will contact you directly through the AssureAsia.com platform. You are free to negotiate terms with them using a built in chat function.

Once you strike a deal, you can meet the buyer at the office of the insurance company to sign the assignment papers. At this point, you will receive the agreed upon amount.

The best part is, you are not obliged to sell your policy if you register through them. Their platform is also a handy way to help you keep track of all your life insurance policies.

If you are interested in buying a policy without a middleman, the process is pretty straightforward. You’ll need to get registered on AssureAsia.com, and then you’ll be able to view the available insurance policies on the Exchange page and contact the seller directly.

Felix tells ZUU online that the platform is ”an easy, efficient and transparent way to sell and to buy pre-owned life insurance policies”. The platform was created for the benefit of consumers because there is no fee for listing their policies on the platform. “We do not make a profit from the transaction at all.”

 

What happens after the sale?

When the sale is concluded, the policy is transferred to the buyer. This person, who is referred to as the assignee, is responsible for payment of the insurance premiums. The assignor, who was the original policyholder, loses the coverage or benefits that were available under the terms of the policy.

This transaction can hold significant financial benefits for the seller. There is a distinct possibility that you could get a substantially greater sum than you would have obtained by simply surrendering the policy to the insurance company.

The most profitable option for you is to hold your insurance policy until maturity. Remember that the product is structured to provide the greatest benefit if premiums are paid until the end of the policy term.

In certain circumstances, discontinuing your policy may be a financially prudent decision. You must explore the possibility of selling your insurance policy instead of surrendering it. The increased amount that you can get by doing this may pleasantly surprise you.

 

 

This article first appeared on ZUU online.

ZUU online is an Asia-based financial education online portal. Founded in Japan by Kazumasa Tomita, a former private banker at Nomura Securities, the portal seeks to fill the information gap between institutional research houses and the private investor.

 

(By ZUUonline)

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