What Are Traded Life Policies And Traded Endowment Policies?

Traded Life Policy
A traded life policy (“TLP”) is a life policy that has been sold by the original policy owner to an investor other than the insurer itself. TLPs are also commonly known as ‘second-hand’ life policies.

Traded Endowment Policy
A traded endowment policy (“TEP”) is commonly known as a ‘second-hand’ endowment policy . It is an endowment policy that has been sold by the original policy owner to an investor other than the insurer itself. TEPs are often participating endowment policies.

How is a TLP or a TEP Brought to Market?
When a policy holder decides to liquidate his life or endowment policy, he may do so via an individual or company who wants to buy the policy for re-sale. Such an intermediary usually offers to buy a life or endowment policy at a price higher than the policies’ surrender value as offered by the insurer. The intermediary may re-sell the policy to a further investor.

The intermediary may also choose to package the policy together with other life or endowment policies to form the underlying investment of a Collective Investment Scheme (“CIS”), a fund, or a corporate entity.

Throughout the buying process, only existing policies purchased from the original policy holders are used. No new life or endowment policy is created in this process.

What Happens in a Sale
In the sale, both the ownership and benefits of the policy are transferred from the original policy owner to the investor. The obligation of paying the policy premium is transferred either to the investor or an intermediary who has purchased and is holding on to the policies with the intention of re-selling them to a further investor. However, the original life insured remains unchanged.

Where policies have been packaged together with other life or endowment policies to form the underlying investment of a CIS, a fund, or a corporate entity, an investor that buys into such a CIS, fund, or corporate entity would indirectly be buying into the underlying TLPs or TEPs.

Obligations when purchasing TLPs and TEPs
A TLP or TEP investor must pay the policy premiums just as if he were the original policy owner. In turn, the insurance company must pay out the benefits based on the terms in the policy contract to the investor when the policy matures or the original life insured passes on.

The obligations of the intermediary to an investor are set out in the contract signed when the TLP or TEP is purchased. Investors should read all the terms and conditions of any contractual document, and make sure they understand the legal implications of entering into any agreement. Investors should not buy the TLP or TEP if they are uncertain about the terms or implications of the contract.

Intermediaries
There are two types of intermediaries involved in the trading of policies, namely:

1. the company or individual, known as the “distributor”, which facilitates the sale of the TLP or TEP to investors; and
2. the company or individual, which buys policies from policy holders and re-sells or packages the policies as TLPs or TEPs to provide to the distributor.
   In certain cases, the individual or company that provides the TLP or TEP to the distributor and the distributor itself may be the same entity.

Intermediaries that buy policies from policy holders and re-sell or package the policies as TEPs or TLPs are not regulated by MAS, whether they are based overseas or in Singapore. Distributors of TEPs and TLPs are also not regulated by MAS, regardless of whether they are based overseas or in Singapore. Currently, registered life insurers in Singapore do not buy policies from policy holders for re-sale, and also do not distribute TLPs and TEPs.

Are TLPs And TEPs Regulated By MAS? Is The Buying Of Policies And The Resale Or Packaging Of Such Policies Into TLPs And TEPs Regulated By MAS?

No. There are no MAS administered regulations which govern the sale, purchase and distribution of TLPs and TEPs. This means that any individual or company involved in buying or distributing these policies is not regulated or licensed by MAS.

The only exception to this is if a CIS, a fund or a corporate entity is already regulated under the Securities and Futures Act (SFA), and TLPs and TEPs form the underlying assets of the CIS, fund or corporate entity. In such cases, the CIS, the fund or the corporate entity would be regulated by MAS under the SFA.

Implications
MAS strongly encourages investors who purchase investment products to deal only with individuals and companies that are regulated by MAS. For more information, investors may refer to the MAS’ consumer guide on “Pitfalls of Dealing with Unregulated Persons“.

However, investors can seek recourse under the Consumer Protection (Fair Trading) Act (“CPFTA”). The CPFTA allows consumers aggrieved by unfair practices to have recourse to civil remedies before the courts. For more information on the CPFTA, please refer to the Ministry of Trade and Industry (“MTI”) website, click here to view the article.