What Is Traded Life Policy?

What does it mean?

A traded life policy, TLP is a life insurance plan that has been sold by the original policy owner to an investor, other than the insurer itself. It is also known as a 'second-hand' life policy, viatical or life settlement.

The original owner may sell his policy through an individual or firm because his health could have deteriorated and he prefers to cash out to pay for medical costs.

Take this as an example, a cancer-stricken policy owner may sell his term plan with a death benefit of $2 million for $1 million. When he dies, the investor gets $2 million.

He would have got nothing if he surrendered it to the insurer.

Why is it important?

The traded policy investor pays the subsequent premiums until the returns are realised when the policy matures or the original owner dies.

Currently, registered life insurers here do not buy policies from policyholders for re-sale. So the traded life plans sold here are generally policies bought from other countries. Distributors of traded life policies are not regulated by the Monetary Authority of Singapore, regardless of whether they are based overseas or in Singapore.