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Selling and buying a third party life insurance policy
19 Feb 2021 (287 views)

Someone asked me to explain the risk in selling and buying a third party life insurance policy.

If you hold a life insurance company and you wish to stop the policy, you have the option to surrender the policy for its cash value. The cash value is quoted by the insurance company.

Suppose the cash value is $10,000.

You may be able to find a third party to pay you more than $10,000 for the policy. The third party will pay your more than $10,000 and take over the policy. The buyer will continue the policy and pay the future premium to its maturity date and receive the maturity proceeds. The buyer, who is familiar with this business, has done his calculation and probably aims to get a return of 5% or more on buying the policy.

What is the risk to the seller? There is no risk. The seller gets a purchase price that is higher than the cash value offered by the insurance company. This could be 5% higher or more.

Here is a platform that offers to buy a life insurance policy that the original owner wishes to give up. 

https://www.policywoke.com/

If you wish to sell your policy, you can give the details of the policy for the platform to offer you a quote. If you find the quote attractive, you can sell the policy to this platform.

This platform also offers you the opportunity to buy any of the third party policies that is already in its portfolio. These are policies that the platform had bought earlier and they now offer to resell it to the new buyer at the quoted price, which is higher than the price that the platform had bought earlier.

Based on the quoted price, the platform indicates the expected yield that the final buyer can get on the policy. This expected yield could be 3% or more. It may appear attractive, compared to the interest on fixed deposit, but it comes with some risk.

The expected yield is based on the projected maturity value of the policy. While a large part of the projected value is guaranteed, there is a portion that is not guaranteed and depend on the future bonuses that will be declared by the insurance company. If the future business is cut, the yield will be lower than what was projected.

Apart from the risk of the projected yield, the investment should be quite secure as the life insurance company is regulated by the government and should be a good financial standing.

The buyer has the responsibility to continue the future premium. There is the risk of overlooking to pay the future premium. This risk can be mitigated by arranging a GIRO to pay the future premium, so that the payment is not overlooked.

Most people probably finds the expected yield of 3% or thereabouts to be not worth the trouble of investing in a third party life insurance policy.

Tan Kin Lian

 

 

 

 



Selling and buying a third party life insurance policy
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Someone asked me to explain the risk in selling and buying a third party life insurance policy.

If you hold a life insurance company and you wish to stop the policy, you have the option to surrender the policy for its cash value. The cash value is quoted by the insurance company.

Suppose the cash value is $10,000.

You may be able to find a third party to pay you more than $10,000 for the policy. The third party will pay your more than $10,000 and take over the policy. The buyer will continue the policy and pay the future premium to its maturity date and receive the maturity proceeds. The buyer, who is familiar with this business, has done his calculation and probably aims to get a return of 5% or more on buying the policy.

What is the risk to the seller? There is no risk. The seller gets a purchase price that is higher than the cash value offered by the insurance company. This could be 5% higher or more.

Here is a platform that offers to buy a life insurance policy that the original owner wishes to give up. 

https://www.policywoke.com/

If you wish to sell your policy, you can give the details of the policy for the platform to offer you a quote. If you find the quote attractive, you can sell the policy to this platform.

This platform also offers you the opportunity to buy any of the third party policies that is already in its portfolio. These are policies that the platform had bought earlier and they now offer to resell it to the new buyer at the quoted price, which is higher than the price that the platform had bought earlier.

Based on the quoted price, the platform indicates the expected yield that the final buyer can get on the policy. This expected yield could be 3% or more. It may appear attractive, compared to the interest on fixed deposit, but it comes with some risk.

The expected yield is based on the projected maturity value of the policy. While a large part of the projected value is guaranteed, there is a portion that is not guaranteed and depend on the future bonuses that will be declared by the insurance company. If the future business is cut, the yield will be lower than what was projected.

Apart from the risk of the projected yield, the investment should be quite secure as the life insurance company is regulated by the government and should be a good financial standing.

The buyer has the responsibility to continue the future premium. There is the risk of overlooking to pay the future premium. This risk can be mitigated by arranging a GIRO to pay the future premium, so that the payment is not overlooked.

Most people probably finds the expected yield of 3% or thereabouts to be not worth the trouble of investing in a third party life insurance policy.

Tan Kin Lian