Category: News

Why are the Yields Higher With A Resale Endowment Policy (REPs)?

In the insurance market, a brand new endowment plan of 10 years typically has a yield of 2.5% P.A. Whereas a 10 years Resale Endowment Plan has a yield of 4% P.A. instead.

That’s a whopping 1.5% more!

How is that even possible when both plans are the same product from the same insurance company? Why is the interest so much higher with a Resale Endowment?
Before we analyse the practical aspect of achieving higher yield from a Resale Endowment Plan, let us go through some endowment basics.

What exactly is an Endowment (participating policies)?

Endowment insurance products are often marketed as a savings plan to help you meet a specific financial goal, such as paying for your children’s education, or building up a pool of savings over a fixed term. Participating endowment policies share in the profits of the company’s participating fund. Your share of profit is paid in the form of bonuses or dividends to your policy. Endowment policies have cash values which will build up after a minimum period, and this differs from product to product.

Growth Phases of an Endowment Policy

There are three growth phases in an endowment policy, namely the Slow Phase, Mid Phase and Fast Phase.

Slow Phase – This phase occurs during the first few years of the endowment policy. Due to the distribution costs applied, an endowment policy usually has zero cash value in the first two years. As a result, the early period growth of the policy is very limited, explaining why endowment policies are often sold at a minimum tenure of 10 years.  

Mid Phase – This occurs when the endowment policy has been running for a few years, with bonuses declared and extra interest accumulated from the bonuses declared earlier. At this phase however, the policy might not have even breakeven yet.

Fast Phase – The fast phase occurs towards the last few years of the endowment policy. This is the period where higher bonuses are declared by the insurance companies as part of the contract.

Higher Yield with Resale Endowment Plans

When you take over a Resale Endowment Plan, you are instantly skipping the slow growth phase of the policy and jumping right into the mid or fast phase. During this process, you also do not have to absorb the distribution costs incurred in the event if you purchase a brand-new endowment plan.

Let’s take a look at an example.

This policy was originally a 10-year endowment plan (29-Nov-17 to 29-Nov-27). The original owner of this policy sold it to us less than 2 years of holding it. The numbers in green show the cash flow that he/she will need to put in.

In this case, the new owner of this policy will need to fund $24,891, and (3 x $15,000 = $45,000). Do note that the premium for the first 2 years ($15,000 x 2 = $30,000) have already been paid for. When the new owner pays $24,891 to take over the policy in July 2019, there will be an immediate savings of almost $5000. 

When the policy matures 8 years later in 2027, the policy will pay out $92,416. By skipping the distribution costs of the endowment policy and jumping right into the mid phase, the new owner enjoys a higher yield of 3.8% P.A. for a period of 8 years.

And this is how you can enjoy higher, efficient savings within a shorter time-frame by purchasing a Resale Endowment Policy!

Contact us today to find out more, or you could also take a look at our REPs List here.

The current COVID-19 situation definitely spells a time of uncertainty right now. Humans have always been fearful of the unknown. However, it is even more in times like these that call for a calm and logical approach.

It has been a roller coaster in the stock market and the market, literally. Panic and fear-mongering are causing people to panic sell stocks while also hoarding necessities like toilet paper and instant noodles. When will the market bottom? when will a vaccine be found? Nobody knows.

The current market can prove to be daunting for investors who invest emotionally. The journey of those who are able to navigate their way systematically during this period might prove to be rewarding, however, how many of them can do so consistently? After all, fear and greed have shown mankind many times that it can cause us to make the most illogical decisions.

Whether we are a savvy investor looking for diversification or a conservative investor seeking for capital protection, it would be ideal to have a safety net in place. During times of unfavourable conditions, while waiting for the storm to pass, it can be reassuring to know that we have a safety net to fall upon for our child’s education or even our own retirement plans.

Resale endowment policies (REPs) could be one way to achieve such certainty when we need it. REPs are policies given up by policy owners and this presents an opportunity for one to take over such policies, resulting in a shorter tenure and high returns. REPs can provide one with predictability and certainty in times like this as we can be assured that the money and pay-out would be there when we need it the most, even in most volatile market conditions.

Should you want to explore how to save with certainty, feel free to contact us.

Most of us park our money in a bank savings account as they offer higher interest rates than a typical standard bank account. However, amid the recent coronavirus pandemic, banks in Singapore have lowered their interest rates on their savings account.

Furthermore, you are required to fulfill a number of criteria (salary crediting, credit card spending, GIRO transactions, and/or insurance and home loans) + have a certain amount of savings to enjoy the maximum effective interest rate.

Source: Heartland Boy

Most banks have decreased their rates drastically by 1% lesser than usual on average. With the decrease in bank savings account interests, is there a better wealth instrument with the same stability available for us to park our money in?

Here’s a comparison chart on the returns one can get through investing in a bank savings vs investing in a REPS, based on $10k.

Resale Endowment Policies (REPS), also known as traded endowment policies, are basically existing endowment plans (or whole life plans) that have been given up by their original policy owners before maturity. Instead of surrendering the plans to the insurer, the original policyholders sell it to a resale endowment provider.

One might ask, is investing in a REPS as safe as parking my money in the bank? The answer is yes.

Just like a bank savings account, REPS is a low maintenance and stable investment. This makes REPS suitable for all profiles, especially conservative consumers. REPS is covered and protected under High Capital Protection and Singapore Deposit Insurance Scheme (SDIC) as well, giving consumers a peace of mind.

The best thing out of all? Other than just simply parking in your money, one does not have to fulfill other criteria to enjoy the projected returns that REPS offer.