*This is not a paid review. I do not receive any form of benefit for this article.
Just before the start of 2017, I was planning my investments for my emergency funds account. Since my emergency fund had grown to a suitable amount, I wanted to seek some sort of return for them, and chanced upon an interesting advertisement – resale endowments.
Like any investor, I approached it with a fair amount of skepticism. After all, we all know the “good” name insurance is associated with these days.
With a quick SMS to the company, I arranged a meet up with Darren to learn more about this form of investment. We had agreed to meet up on a Tuesday, but he had to reschedule our appointment. I remember thinking to myself “this can’t be good.”
Dressed to my best (of T-shirt and shorts) on Christmas eve, I made my way down to Suntec City. Darren was already there when I reached, proving that you can get a good impression just by being on time. Being a naturally affable guy, he shared with me on why resale endowment is a good deal.
Resale endowment is basically a private sale of long term savings plan with insurance companies, by people who signed up and no longer wanted to maintain it. My main concern was on how reliable the company (that did the sale) was, considering that they will be collecting my payment first.
My concerns were put to rest over the next hour. There was no hard selling, and I went home to do my own research on the plans available for sale.
On the first week on 2017, I met up once again to sign the contract and paid up via bank transfer. Without any hiccup, I should be a proud owner of a 2006 endowment plan by the time you read this article.
These are the reasons why resale endowment is suitable for me, and maybe you too:
1. A reasonable amount of yield
- Initial payment – $4900
- Annual payment – $368.85 ($1028.65 – $660 cashback)
- Payment length – 14 years
- Total payment – $10,061.10
- Expected maturity value – $16,794.14
- Annual return – 4.78%
I believe 4.78% is a figure that is above, or among the higher range of brand new 25 years endowment plans.
I am essentially benefiting from someone who has already paid up 11 years (or $11,315) and choose to forfeit a large portion of it. All upfront commission and policy cost has been born by the first buyer.
2. Shorter amount of holding time
There is a holding period of 14 years, compared to 25 years.
3. Maintain liquidity in my emergency fund account (while locking in yield)
This is the most important reason for my purchase. As an emergency account, we often leave funds, often $20k and up in a bank.
With a resale endowment, I had in fact lock up $10,061 of my capital at a rate of 4.78% (for 14 years).
Yet, my account has only decreased by $4900, leaving $5,161 in my account that will be slowly drawn out. That is what I term as my reserved liquidity.
In the event of an emergency, I will be able to utilize this $5,161. In that case, as long as I am able to top up at least $370 per year into the account, my policy will not lapse.
I believe my top up each year will definitely exceed the drawn out amount, so the decreasing reserved liquidity pool will not affect me. In fact, I plan to add more policies with varying maturity year, allowing me to fully lock in a suitable rate for most of my cash while maintaining my liquidity to use the account as emergency fund.
In short term, I will have liquidity, and in long term, a high interest rate for my capital. Sounds like a win win situation to me.
4. Backed by a company
Ultimately, the endowment plan is issued by the insurer and by choosing a company with a high rating/ strong financials, we are able to reduce our risk of insurer going bankrupt.
5. Buy good plans with less fluctuations
Buying a resale endowment plan has allowed me to travel through time and purchase a 2006 endowment plans. Older endowment plans generally have high illustrated interest rates at 5.25% and above as compared to current 4.75%.
I’ve heard that insurance company are generally more unwilling to make changes to the declared bonus as the policy draws near maturity. This is because they want clients to maintain a good impression of the company and re-invest their matured cash with a new policy.
No matter if this is true, by buying a resale endowment plan, we are able to assess the performance of the policy thus far, and decide if a company is able to maintain its promised rate till maturity.
Since declared bonuses cannot be withdrawn, we are taking less risk than a new full 25 years plan.
An important point to note: for any investment that requires you to lock up your capital, it is crucial to look far and plan ahead. An illiquid investments will suffer huge loss for early withdrawal.
If you are still looking around to grow your golden nest, why not consider a resale-endowment plan?
If you have further queries, you can look for Darren (6221 4770) from REPs holding. He is extremely knowledgeable (12 years experience) and will be able to answer any questions you have. (You can try quoting simpleinvestor for a discount. 50% chance of working.)