BUYING LIFE INSURANCE PRODUCTS DIRECTLY FROM INSURANCE COMPANIES WITHOUT COMMISSIONS

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1 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 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. 1

2 (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 coverage 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 2

3 income 2 based on a 2012 Protection Gap Study 3 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. 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 Based on MAS estimate, this will amount to a gross annual income of about $44, The Protection Gap Study was conducted by consultancy firm Towers Watson in 2012, and the report may be accessed via this link: Aug12.pdf. 3

4 Annex Features of Direct Purchase Products Direct purchase products will comprise: (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 with the following features: Features Remarks (a) For whole life direct purchase Non-participating products are typically products, only participating not offered in the market due to poor products will be offered demand and high cost. (b) Premium payment periods for This will cater to consumers whole life direct purchase preferences to either pay premiums for products: a shorter duration at a higher annual Up to age 70 premium but lower total premiums; or to Up to age 85 pay premiums for a longer duration at a lower annual premium but higher total premiums. (c) Policy coverage period for term life direct purchase products: This will cater to consumers with different protection needs - 5 year 5 years (with renewability feature)* renewable term for consumers who prefer shorter coverage, and 20 year 20 years* term and term up to 65 for consumers Up to age 65 who prefer longer coverage. For the 5 * TPD and CI benefits cover up to age 65; Death and Terminal Illness benefits cover up to age 85. year renewable term and 20 year term, consumers can be covered up to age 85. (d) Maximum sum assured: This takes into consideration the $400,000, with a sub-limit of $200,000 for whole life direct average protection need of the average working adult, estimated at 10 times of 4

5 purchase products, on a per person per insurer basis (e) Minimum sum assured: $50,000 per policy (f) Maximum entry age: 65 (g) Minimum entry age: 18 annual income based on a 2012 Protection Gap Study commissioned by LIA. 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 Based on MAS estimate, this will amount to a gross annual income of about $44,000. This will translate to protection needs of about $400,000. 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. This is in line with most term and whole life policies currently sold in the market. This is based on the current official reemployment age cap. This is in line with current industry practice for a life insurance policy owned by the insured. No third party policies will be offered, as these 5

6 (h) Death, terminal illness, TPD and CI benefits: 100% of sum assured, with standardised TPD definitions and 30 CIs covered** ** 10% sum assured for Angioplasty & Other Invasive Treatment for Coronary Artery. A list of the 30 CIs covered are as follows: 1. Major Cancers 2. Heart Attack of Specified Severity 3. Stroke 4. Coronary Artery By-Pass Surgery 5. Kidney Failure 6. Aplastic Anaemia 7. End Stage Lung Disease 8. End Stage Liver Failure 9. Coma 10. Deafness (Loss of Hearing) 11. Heart Valve Surgery 12. Loss of Speech 13. Major Burns 14. Major Organ/Bone Marrow Transplantation 15. Multiple Sclerosis 16. Muscular Dystrophy products typically have a premium waiver rider attached. Consumers will likely require financial advice for the purchase of such products. This TPD benefit pay-out is consistent with current industry practice. The 30 standardised CIs are commonly offered by life insurers. In particular, the top 5 CIs major cancers, heart attack of specified severity, coronary artery bypass surgery, stroke and kidney failure account for over 90% of all severe stage claims received by life insurers 4. 4 Source: 2012 Dread Disease Survey by major reinsurer General Reinsurance Corporation. 6

7 17. Parkinson s Disease 18. Surgery to Aorta 19. Alzheimer s Disease / Severe Dementia 20. Fulminant Hepatitis 21. Motor Neurone Disease 22. Primary Pulmonary Hypertension 23. HIV Due to Blood Transfusion and Occupationally Acquired HIV 24. Benign Brain Tumour 25. Viral Encephalitis 26. Bacterial Meningitis 27. Angioplasty & Other Invasive Treatment for Coronary Artery 28. Blindness (Loss of Sight) 29. Major Head Trauma 30. Paralysis (Loss of Use of Limbs) (i) Non-guaranteed premium for CI acceleration*** rider. *** Upon contracting a CI, the CI benefits will be paid out and the main policy will terminate. This is consistent with current industry practice. For media enquiries, please contact Denise Gan Deputy Director (Corporate Communications) Tel: Fax: denisegan@mas.gov.sg 7