Selling Your Endowment Policy
An endowment policy is an insurance contract that covers a certain period of time. The policyholder receives a lump sum, together with the bonuses amassed during the period, when the contract mature or in case of death. The maturity period can be ten, fifteen or twenty years. There are some policies that pay if fatal illness occurs.
The benefit of endowment is, unlike whole life insurance, the sum paid plus the bonus will be given to the holder. The money can be used by the insured in whatever expenses he needs to pay. Or, he could reinvest this in an annuity policy so he will get a monthly pension for the rest of his life.
Endowment plans typically fall under two kinds. These are: reversionary bonus and terminal bonus. Reversionary bonus is also known as regular bonus. This is a yearly bonus added to the sum which the holder will receive after the policy ends. The amount of the bonus will depend on how the insurer’s capabilities and performance. The other bonus is the terminal bonus which is a bonus for loyalty paid out at the end of the period of the policy.
Why Sell Endowment Policies
There are a number of reasons why an insured would want to sell their policy. One possible reason is they may no longer need it. Perhaps, the kids have grown up and they have their own policies too. Redundancy of policies occurs. Thus, the insured does not want to continue paying for the endowment policy.
Divorce is another possible reason. Spouse need to divide their properties and income including the earnings from insurance policies. If there are changes in the mortgage agreement, the insured might need to sell or surrender it.
High premiums could be another reason. The holder may not be able to afford paying for the monthly premiums anymore. People who own policies may want to transfer the plan so they can have better quality of life as they reach the retirement age.
Cash in Endowment
The policyholder may desire cashing in endowment policies early or surrender endowments. The surrender value is computed by the insurance company based on the length of the insurance policy and the amount paid.
Aside from surrendering endowment policies back to the insurance company, another option that holders may want to explore is to sell endowment policies. Selling an endowment policy can potentially earn you more than surrendering it.
The traded endowment policy (TEP) enables insureds to sell their with-profits endowments for a higher price than what the usual value for surrendering the policy is. This rule only does not apply to unit linked with profits policies. It is only applicable to conventional with-profits policies that receive yearly bonus.
If the holder decides to sell the endowment, finding an investor that will pay for the policy is truly helpful. In most cases, the selling value of the insurance is in the range of $100,000 to $300,000. If the face value is higher, the holder can expect higher endowment policy sales.
In selling endowment policies, the insured need to consider the requirements of the third-party company buying it. The contract must first be in good standing. The person selling the policy must meet the requirement for age. Also, transferring the policy to another person should be allowed.
In most cases, the company would want to purchase endowment policy with-profits or with-profits whole life. The holder must have the policy for more than 5 years. Policies that do not have with-profits clause may not sell as much.
Surrender value may also be another consideration. Some companies will only buy endowments with surrender value of at the very least $ 3,000. If your endowment does not qualify, then you have no other option but to accept what the issuer offers to you.
The whole process can take four to six weeks to complete. The length of time will depend on the number of cases the company is handling. Unfirm offers may take longer because of the need to look for a purchaser of endowments.
Four stages of Selling
1. Valuation. This is the phase where ownership of the policy and the status such as ‘paid up’ are confirmed. You will have to disclose several key information during the valuation stage such as name, address, surrender value, attaching bonuses and their dates, premium payable, assured sum and so many others.
The surrender value has to be the most current valuation. This is important so selling price of the policy will not be lesser than surrender value.
The information will enable the purchaser to assess the fair settlement amount for the endowment. Once an offer is provided, the insured will decide if it is best to sell or continue with the policy. To have a fair idea of how much the policy will be worth in the future, use the bonus rates and multiply it with the remaining number of years. The product will be more or less the amount the insured will receive once the contract ends.
If in doubt, consult a financial adviser. They can help you determine which option is the best.
2. Sales Contract. If the decision is to accept the offer then a contract stating the agreed price will be issued. The contract will state the length of time the offer stands which is the deadline for the final decision. The contract is a binding instrument which contains the terms and price the insured must adhered to once he decides to sell.
The policyholder must sign the contract note to signify his agreement to the terms. The contract note will state the agreed date the buyer will start paying the premiums. The buyer has to reimburse the seller for any premiums paid after the agreed date. Premium reimbursements are paid along with the selling price delineated in the contract.
3. Confirmation of the details of the policy and the title. The buyer needs to ascertain that all the details pertaining to the policy that provided by the seller are right. They also check if any amendments to the policy were made in the past which the seller did not disclose to the buyer. For instance, if the policy is currently used as a collateral for a loan.
4. Amending the Title and Completion. Before the reassignment of the policy becomes final, the buyer will conduct a bankruptcy check. The purchaser may use two attorneys to provide clear title before releasing the payment. Reassignment occurs once the payment is made. Change of title becomes complete once reassignment is done.
Before surrendering the policy to the insurer, it is important to study other options available such as borrowing using the endowment, making the policy paid up and consider selling it. If the insured believes that selling is the best option, then he should start searching for a purchaser. There are companies dedicated to the business of buying endowments which have the necessary experience on this matter.
Selling the policy can net the insured a higher value than surrendering it. The purchase offer is usually 10 to 25 percent higher than the surrender valuation. The marked difference could mean a lot of money will be wasted if the selling option is not considered.