This article is written in collaboration with TES Capital. All views expressed in the article are the independent opinions of Sethisfy.com. Read Sethisfy.com’s editorial policy. None of this site’s content constitute personal financial advice and you should do your own due diligence before making any financial decision.
It’s a familiar scene: the insurance agent tells you that bank deposit interests are lousy, and starts scribbling graphs and numbers on their iPad. You nod along, and sign this 20-page document of tables and wordings nobody has time to read, and then you walk away from the appointment not really sure what you have bought.
Vaguely, you know that it’s saving for the long term but there’s just something that feels off about it. Off to good old Google you go, and then you realise that insurance savings plans are not that good an idea after all. The upfront commissions eat into your savings, the overly conservative portfolio does not give you a great return over the long time period, and your funds are stuck in a very illiquid product.
What can you do with the savings plan that you have bought? Well, it depends on a few things: how long ago did you buy your savings plan, and is it affecting your cashflow for other more meaningful financial activities?
Less than 2 weeks ago: free-look
Great news: thanks to this thing called the “free-look period” and your prudence in Googling what you have just bought (and finding all manner of negative things about savings plans), you get to undo what could potentially be a lot of opportunity cost. The free-look period allows you to cancel the policy and get back whatever premium you have paid for the policy, minus expenses that the insurer incurred in setting up your policy. Such expenses tend to refer to medical checkups, and almost all savings plan applications wouldn’t require such a checkup, and thus you would likely get back your entire premium.
Even if it’s a little more than 2 weeks, I would advise you to try and free-look your policy if you are able to.
Around 1 to 2 years: awkward…
If your policy is in its first or second year, this is where things get quite awkward. On one hand, you have already paid some premiums, and stand to lose them all if you don’t continue with the policy. On the other hand, due to the upfront commissions of most savings policies, each premium you put in the first couple of years is likely going towards paying “distribution costs”. Fun fact: that’s why your cash value is $0 in the first 2 years.
This is where sunk cost fallacy is relevant: regardless of whether you keep the policy or not, the commissions paid to your agent has been paid. Keeping the policy to a so-called “break even” year is merely the investment returns covering the hole caused by the upfront commissions.
You should keep the policy if you feel like you are unable or unwilling to find better alternatives. Otherwise, accept that the cost has been sunk and cut loss, especially if the premium commitment is preventing you from more meaningful financial pursuits.
It’s always a touchy issue telling people to terminate their policies, and it’s generally not a good idea to do so. Do exercise due diligence and do not take this as personal financial advice.
More than a few years old: decision to make
For policies that are older, the good news is that the worst is over: the upfront commissions have been paid, and your savings plan now… saves. You have two options here:
You can keep the policy and continue paying the premiums, taking it as a relatively low risk product that forces you to save each month. It’s not the most ideal, but at least you are putting away some money each month.
2. Discontinue and look for better alternatives
If you are willing to accept that the sunk costs of the policy have already been incurred, and you have better options to put your money, you may consider surrendering your policy. This is especially so if the premium obligation of your policy have become a burden that prevent you from meeting your other financial needs. Do note that your policy’s surrender value will very likely be lower than what you have put in, mostly due to the upfront costs when you bought the policy.
But if you do wish to surrender your policy, do you know that you could actually sell your policy to someone else instead? Selling your policy would give you a higher payout than the surrender value offered by the insurer, and should therefore be something you look at if you no longer want to keep your endowment policy.
TES Capital can buy your unwanted endowment/life policies for as much as 5 to 50% higher than the latest surrender value (for eligible plans). You can get your money via PayNow upon signing the documents, and the turnaround time is typically 24 hours! TES Capital is so confident of giving a great price for your policy, they are offering a price-match if other companies make you a better offer!
On top of that, readers of Sethisfy.com get a bonus $200 on top of the usual sale price!!
What happens to your savings plan? Subscribe to my Telegram for an upcoming post on traded endowment policies.
As far as possible, I have always been advising people to stay away from regular premium savings plans. They are generally poor value for consumers since a lot of the premium in the early years are taken out as commissions and distribution costs. The underlying investments are arguably overly conservative for the long 20 to 25 years time horizon they lock you in for.
If you have already bought a savings plan, hopefully this has been useful for you. Think twice before surrendering, and if you do wish to surrender, it is probably much better to sell it off.
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