Buying Life Insurance Products Directly from Insurance Companies without Commissions
Singapore, 30 July 2014… The Monetary Authority of Singapore (MAS) announced today the features of life insurance products that consumers can purchase directly from insurance companies, without incurring commissions (direct purchase products). This is an initiative under the Financial Advisory Industry Review (FAIR)1.
2 The features for these direct purchase products took into consideration the need to balance the interests of all stakeholders, while ensuring that the product design meets the primary protection needs of consumers. MAS actively engaged consumer groups and industry associations over the past 10 months before settling on the features. MAS will continue to work with industry groups to institute safeguards for the sale of these products.
3 The features of these direct purchase products will be broadly standardised to make them easier for consumers to understand and purchase without the need for financial advice. MAS will require all insurance companies that serve the retail market to offer the following direct purchase products:
(a) Term life insurance products with Total Permanent Disability (TPD) cover; (b) Whole life insurance products with TPD cover; and (c) Optional critical illness (CI) rider attached to term life or whole life insurance products.
Consumers who wish to buy direct purchase products will still be subject to underwriting by the insurer.
4 For term life insurance, direct purchase products will comprise three variations in the policy coverage period, with the premium payment period matching the policy coverage period:
(a) 5 years, with renewability feature (b) 20 years (c) Up to age 65
These three variations in the policy coverage period for term life direct purchase products will cater to consumers with both short and long term protection needs.
5 For whole life insurance, direct purchase products will comprise two variations in the premium payment period:
(a) Payment up to age 70 (b) Payment up to age 85
These two variations in the premium payment period for whole life direct purchase products are commonly offered by insurers and are popular with consumers. For a given sum assured, they offer consumers a choice of a shorter and longer premium payment period to cater to differing personal circumstances.
6 The maximum sum assured for direct purchase products will be set at $400,000, with a sub-limit of $200,000 for whole life products, on a ‘per person per insurer’ basis. In setting the maximum sum assured, MAS took into consideration the protection need of the average working adult, estimated at 10 times of annual income2 based on a 2012 Protection Gap Study3 commissioned by the Life Insurance Association, Singapore (LIA).
7 The sub-limit of $200,000 for whole life products seeks to alleviate the risk of consumers buying whole life products beyond their means and protection needs. This is because whole life products have higher premiums than term life products, and typically require a longer-term premium commitment. Policyholders who surrender their whole life policies in the early years of the policy also stand to lose a significant portion of their premium outlay.
8 Mr Lee Boon Ngiap, Assistant Managing Director for Capital Markets, MAS, said, “When direct purchase products are introduced in early 2015, they will provide consumers who do not require advice with cheaper access to selected life insurance products. Consumers will benefit from the greater price competition that will be introduced between the direct and commission-based channels. Consumers who are unfamiliar with financial products should approach their financial advisory representatives for financial advice.”
1 FAIR is aimed at raising standards of practice in the financial advisory industry and improving efficiency in the distribution of life insurance and investment products in Singapore. On 30 September 2013, MAS accepted most of the FAIR Panel’s recommendations and is progressively implementing the initiatives. 2 Based on the Ministry of Manpower 2013 Comprehensive Labour Force survey, the median gross monthly income of full-time employed residents, including employers’ CPF, is $3,705 in 2013. Based on MAS’ estimate, this will amount to a gross annual income of about $44,000. 3 The Protection Gap Study was conducted by consultancy firm Towers Watson in 2012, and the report may be accessed via this link: http://www.lia.org.sg/files/document_holder/FAIR/LIA_Protection_Gap_Study_2012_Presentation_3Aug12.pdf.