Resale Insurance

[Samboy5262]

I could not find information on resale insurance in this forum and I am opening a new thread for discussion.

I am over 55 and have some spare funds in CPF OA. The IRR on resale insurance plan is between 4-5% (depending on the term duration), it seems to be pretty attractive with a little higher risk than CPF OA.

Anyone have opinion or comments on resale insurance plan?

 

[BBCWatcher]

I could not find information on resale insurance in this forum and I am opening a new thread for discussion.

I am over 55 and have some spare funds in CPF OA. The IRR on resale insurance plan is between 4-5% (depending on the term duration), it seems to be pretty attractive with a little higher risk than CPF OA.

Anyone have opinion or comments on resale insurance plan?

A few points to consider:

1. If you have Special Account dollars then those dollars are coming out first when you attempt to withdraw Ordinary Account dollars.

2. The resale insurance plan isn't particularly liquid, and the term isn't necessarily predictable since it might be based on someone else's date of death. Do these characteristics concern you?

3. Are you calculating the 4% to 5% IRR using the insurer's guarantee, or are you incorporating a non-guaranteed projection of some kind? If the latter, the analysis is a little more complicated. For example, let's suppose the guarantee is a 1% IRR but with the possibility of up to 4.5%. Is that a good deal versus 2.5% interest that's virtually government guaranteed on liquid funds? Many would argue no, that's not a good trade.

4. Assuming you can even tap CPF OA dollars without "molesting" SA dollars, is your OA your lowest cost source of investible funds?

 

[SBC]

Will the insurance coy inform these new resale owner upon the death of the insured?

 

[Samboy5262]

A few points to consider:

1. If you have Special Account dollars then those dollars are coming out first when you attempt to withdraw Ordinary Account dollars.

2. The resale insurance plan isn't particularly liquid, and the term isn't necessarily predictable since it might be based on someone else's date of death. Do these characteristics concern you?

3. Are you calculating the 4% to 5% IRR using the insurer's guarantee, or are you incorporating a non-guaranteed projection of some kind? If the latter, the analysis is a little more complicated. For example, let's suppose the guarantee is a 1% IRR but with the possibility of up to 4.5%. Is that a good deal versus 2.5% interest that's virtually government guaranteed on liquid funds? Many would argue no, that's not a good trade.

4. Assuming you can even tap CPF OA dollars without "molesting" SA dollars, is your OA your lowest cost source of investible funds?

1. Understand CPF will wipe out SA before taking money from OA. I have zero balance in SA so the withdrawal will be from OA.

2. The 2 common type of resale insurance in the market are Endowment Plan which will be matured on a specific time frame and Life Plan with can be surrendered anytime and is recommended to surrender at a time when the value is the highest (based on the benefits illustration)

3. The return of 4%-5% is inclusive of non-guaranteed return. Will have to hold the polity till maturity to achieve this return. There is a guaranteed portion but it is pretty low and surrendered the policy before the maturity will be a loss. This is a risk to achieve a return higher than CPF OA 2.5% return.

The target return of this investment is based on the maturity of the policy (endowment plan) or the highest surrender value (Whole Life Plan)

When the insured person passes on, the investor (policyholder of the resale insurance plan) will not get to know.

However, if the insured person has other policies with the insurance company and when a claim is made (by the insured family member), the insurance company will notify the policyholders and the investor can make a death benefits claim.

If anyone plans to buy an endowment plan just for investment, I think a resale endowment plan is more attractive because the time frame to mature is shorter.

 

[DevilPlate]

Read that it isn't regulated by MAS.

 

[BBCWatcher]

3. The return of 4%-5% is inclusive of non-guaranteed return. Will have to hold the polity till maturity to achieve this return. There is a guaranteed portion but it is pretty low and surrendered the policy before the maturity will be a loss. This is a risk to achieve a return higher than CPF OA 2.5% return.

Isn’t this part a big problem? You can already achieve non-guaranteed returns all by yourself. This’d only make sense if the guaranteed portion is reliable and substantial enough, and if the price of the policy is discounted enough, that you’re compensated for the insurance company’s hefty overheads. Said another way, what makes this resale plan suck substantially less than it sucked when the original sucker bought it? I’m open to the possibility that it sucks so much less that it’s attractive, but I’m not seeing it yet.

Bear in mind you also have, if nothing else, the option of (re)injecting funds into CPF at a $37,740 annual pace to obtain 2.X% interest where X is a number above 5. That’s an “all three account” Voluntary Contribution. Plus annual RA top ups every time the ERS increases for a floor IRR of 3.X%. So it’s not quite true that 2.5% is all you can get out of CPF, and those are just the CPF options. Investment (and “investment”) opportunities should always be benchmarked against the best available alternatives, not against only the status quo.

When the insured person passes on, the investor (policyholder of the resale insurance plan) will not get to know.

However, if the insured person has other policies with the insurance company and when a claim is made (by the insured family member), the insurance company will notify the policyholders and the investor can make a death benefits claim.

That’s a big if.

 

[Value.Matrix]

Isn’t this part a big problem? You can already achieve non-guaranteed returns all by yourself. This’d only make sense if the guaranteed portion is reliable and substantial enough, and if the price of the policy is discounted enough, that you’re compensated for the insurance company’s hefty overheads. Said another way, what makes this resale plan suck substantially less than it sucked when the original sucker bought it? I’m open to the possibility that it sucks so much less that it’s attractive, but I’m not seeing it yet.

Bear in mind you also have, if nothing else, the option of (re)injecting funds into CPF at a $37,740 annual pace to obtain 2.X% interest where X is a number above 5. That’s an “all three account” Voluntary Contribution. Plus annual RA top ups every time the ERS increases for a floor IRR of 3.X%. So it’s not quite true that 2.5% is all you can get out of CPF, and those are just the CPF options. Investment (and “investment”) opportunities should always be benchmarked against the best available alternatives, not against only the status quo.


That’s a big if.

Difference is in cash or cpf (especially if the person is below 55).

Its also not for everyone, and the risk is the same as the first "sucker" who bought it after you takeover it.

 

[BBCWatcher]

Does it seem likely that an insurance company in Singapore is going to return even 4% net investment results going forward on a bond heavy investment portfolio, so likely that you’d be willing to stake 2.5%/year government guaranteed money to chase that possibility? That doesn’t seem like a good bet to me at this time, not with this particular money.

 

[Value.Matrix]

Does it seem likely that an insurance company in Singapore is going to return even 4% net investment results going forward on a bond heavy investment portfolio, so likely that you’d be willing to stake 2.5%/year government guaranteed money to chase that possibility? That doesn’t seem like a good bet to me at this time, not with this particular money.

If the discount is huge enough, yea.

I have seen annuity payout in 8 years time with a guaranteed of IRR 2.2% min and upside of 4.2% for such traded ones (simply because of the price discount).

Though that's not particularly attractive anyway for a person below 55 right? since they can just put it into CPF or invest heavily in equities for further upside anyway

 

[BBCWatcher]

If the discount is huge enough, yea.

I have seen annuity payout in 8 years time with a guaranteed of IRR 2.2% min and upside of 4.2% for such traded ones (simply because of the price discount).

Getting better, but how bullish should we be with 2.5% money after bonds have had such a great run?

Though that's not particularly attractive anyway for a person below 55 right? since they can just put it into CPF or invest heavily in equities for further upside anyway

True, the comparison should be against the best available alternatives which may or may not be the status quo.

 

[Value.Matrix]

Getting better, but how bullish should we be with 2.5% money after bonds have had such a great run?

True, the comparison should be against the best available alternatives which may or may not be the status quo.

Basically smoothing of returns. Instead of a lock in on bonds.

So i said its not for everyone.

 

[brfish]

Does it seem likely that an insurance company in Singapore is going to return even 4% net investment results going forward on a bond heavy investment portfolio, so likely that you’d be willing to stake 2.5%/year government guaranteed money to chase that possibility? That doesn’t seem like a good bet to me at this time, not with this particular money.

Definitely no for new policies. But possible for resale ones. Since the cash value is so low in the middle of the policy, the original owner might be desperate enough to let it go with a huge discount, just slightly above surrender value. But those are really rare situations.