You have questions about secondary market endowment policies (second-hand policies)

Caution is advised when investing in second-hand policies. As a rule, the providers of these policies are not subject to solvency controls or supervision. These investments are therefore exposed to risks, including the risk of counterparty default, and experience shows that it is difficult for investors to enforce claims against providers through the courts.

The secondary market for endowment policies is one in which policyholders surrender their claims under existing life insurance contracts during the term of the contract and are compensated accordingly. The term “second-hand policies” is also used.

Is there an authorisation requirement?

Depending on its legal structure, a foreign insurance company offering such policies to individuals resident in Switzerland may be required to hold a licence (if it is an insurance company) or to be registered as an insurance intermediary (if it acts as an intermediary). However, structures are often seen for which there is no licensing requirement and no supervision in Switzerland.

How does the trade in second-hand policies work?

The investor buys the legal rights to a policy from the original policyholder under the terms of a contract. The price paid is based on an expert opinion of the life expectancy of the original policyholder. The purchase price and the expert opinion are the main factors on which the projected success of the investment for the investor depends.

Who can you make claims against? Who is your contractual partner?

The trade in second-hand policies is often structured in such a way that investors have a contract with a third company which operates as a broker or intermediary and not in fact with the foreign insurance company.

Investors therefore have no direct claim against an insurance company, but rather against a broker who is usually not subject to supervision either in Switzerland or abroad. This means an increased risk of default. When entering into contracts/policies of this kind, potential investors should always check who their contractual partner is and against whom, where, and at what cost claims can be asserted.