Insurance firms to offer commission-free life policies

SINGAPORE — Consumers in the Republic will be able to buy selected life insurance policies directly from insurance companies from early next year without incurring commission, in a move that the Monetary Authority of Singapore (MAS) hopes will encourage more people to be insured.

The initiative is part of an industry evaluation process called the Financial Advisory Industry Review (FAIR) — introduced in 2012 — which sets out recommendations to raise the standards of the insurance sector.

One such recommendation requires all insurance companies that serve the retail market to offer direct purchase products, or policies that can be purchased without going through financial advisers.

“(Direct purchase products) 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,” Mr Lee Boon Ngiap, MAS’ assistant managing director for capital markets, said today (July 30).

The products that will be offered encompass term and whole life insurance, with total permanent disability cover and an optional critical illness rider.

The minimum sum assured for these products is set at S$50,000 per policy, in line with most term and whole life plans currently sold in the market. The maximum sum assured will be capped at S$400,000 per person per insurer, with a sub-limit of S$200,000 for whole life products.

“The sub-limit … for whole life products seeks to alleviate the risk of consumers buying whole life products beyond their means and protection needs. This is because (they) have higher premiums than term life products and typically require a longer-term premium commitment,” the central bank said.

Such direct purchase products will still have to be underwritten by insurance companies, it added.

The Life Insurance Association Singapore (LIA) said the features of these products would be largely standardised to allow better understanding and easier comparison across different insurers.

Its president, Dr Khoo Kah Siang, said the move will help bridge the protection gap for life insurance in the Republic, which stands at an average S$242,500 for every adult here who is actively working, a 2012 study commissioned by LIA showed.

“These direct purchase products are designed to meet the primary protection needs of consumers and are particularly suitable for self-directed individuals who do not need advice from financial advisers. We are pleased that this new channel offers another avenue for Singaporeans to obtain affordable protection products,” Dr Khoo said.

On concerns expressed by some financial advisers that their livelihood might be affected following the implementation of this initiative, he said they still have a role to play in the industry. “Consumers who require holistic financial planning … should approach their financial advisers, as financial advisers are trained to offer customised solutions to meet the needs of each individual.”

About Direct Purchase Products:

– Premium payment period for participating whole life products: Up to age 70 or 85

– Policy coverage period for term life products: 5 years, 20 years or up to age 65

– Maximum sum assured: S$400,000 (with sub-limit of $200,000 for whole life products) per person per insurer

– Minimum sum assured: S$50,000 per policy

– Minimum and maximum entry age of 18 and 65 respectively

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