Traded Endowment/Life Policy
There are companies, in certain countries, who are willing to pay more than what you'll get when you surrender your endowment or life insurance policy to your insurance company. I knew about this for about two decades already but it wasn't availble when I was working in Singapore, until now.
How do such companies earn? Well, they earn the difference between the insurance benefit upon claim and the amount the paid for the policy. This will materialise if the insured lives long enough for the sum assured to exceed that said amount. This raises an interesting issue. Firstly, we need to discuss the term 'insurable interest'.
A basic element of insurance is insurable interest i.e. the beneficiary will suffer some sort of loss(es) upon the demise of the insured. Classic example will be the death of a father, the breadwinner of the family, causing financial hardship to his family. He can then be the insured while the beneficiary can be his wife, children or both.
When an endowment or life insurance policy is sold to such company, the insurable interest element vanishes, thereby transforming this insurance contract to an investment contract or, as I would call it, a form of gambling. Surprisingly, apparently, Singapore's law requires insurable interest to exist only at the inception of the policy. So this transaction is perfectly legal as the policy is still valid.
I wished it had already existed back when I surrendered my two endowment policies. Darn it :)
How do such companies earn? Well, they earn the difference between the insurance benefit upon claim and the amount the paid for the policy. This will materialise if the insured lives long enough for the sum assured to exceed that said amount. This raises an interesting issue. Firstly, we need to discuss the term 'insurable interest'.
A basic element of insurance is insurable interest i.e. the beneficiary will suffer some sort of loss(es) upon the demise of the insured. Classic example will be the death of a father, the breadwinner of the family, causing financial hardship to his family. He can then be the insured while the beneficiary can be his wife, children or both.
When an endowment or life insurance policy is sold to such company, the insurable interest element vanishes, thereby transforming this insurance contract to an investment contract or, as I would call it, a form of gambling. Surprisingly, apparently, Singapore's law requires insurable interest to exist only at the inception of the policy. So this transaction is perfectly legal as the policy is still valid.
I wished it had already existed back when I surrendered my two endowment policies. Darn it :)
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