Buying Life Insurance Products Directly from Insurance Companies without Commissions

If you have been following the FAIR Review, or officially the Financial Advisory Industry Review, you may be wondering what is the status or development thus far. (Read about it at Monetary Authority of Singapore issues finalised FAIR initiatives to lift insurance industry standards.)  

The direct channel through which “basic insurance” products can be purchased with a nominal administration fee, had seem to be one of the easier initiatives to be implemented with expectation that it could be implemented in the first quarter of 2015.

In a press release then, Mr Lee Boon Ngiap, Assistant Managing Director for Capital Markets, MAS, had said, “When direct purchase products are introduced in early 2015….”

However, industry sources say, it will not be ready by the first quarter of 2015 and will likely be pushed to the second quarter at the earliest.

While awaiting its implementation, here’s a recap on what this initiative is about, the types of insurance products that will be sold through this channel, and the maximum sum assured that will be available.

What are the life insurance products that people can buy direct from insurance companies in Singapore without having to pay commissions?

In a press release, the Monetary Authority of Singapore (MAS) had announced the features of life insurance products that consumers can purchase directly from insurance companies, without incurring commissions (direct purchase products), as part of the initiatives under the Financial Advisory Industry Review (FAIR). 

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. 

What are the types of insurance products that will be sold direct, commissions-free?

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.

Does this mean that the insurance companies will be forced to sell to anybody with medical conditions?

Consumers who wish to buy direct purchase products will still be subject to underwriting by the insurer. That means, an insurer can still reject, ask the client to pay more (loading) or decline to cover certain conditions, depending on the severity of his/her medical conditions. 

(Not to be confused with Medishield Life which offers Universal coverage regardless of health conditions. For more info: http://www.insuranceemart.com/2014/06/medishield-life-vs-private-integrated.html)

The insurance products features and specifications:

Term Life Insurance

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. 

Whole Life Insurance

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. 

Maximum sum assured

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 income based on a 2012 Protection Gap Study commissioned by the Life Insurance Association, Singapore (LIA).

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.

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.”

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