Direct Purchase Insurance – a must read before your purchase

Last Updated on 16, January 2017

Today is the official launch of the Direct Purchase Insurance. This means you can buy insurance directly from the insurance company without financial advice. More importantly it means there is no commission and hence premiums should be cheaper. This is suitable for those who are financially savvy and makes their own decisions.  What you can buy are term insurance and whole life insurance.

The Direct Purchase Insurance has been deliberately standardised by Monetary Authority of Singapore. The features of the Direct Purchase Insurance can be found at this link HERE. Basically you can only buy up to $400,000 of sum assured from one insurer with a sub-limit of $200,000 of whole life policy.  Note that these limits are per insurer basis. This means that if your need is higher, you can actually get an even higher coverage by buying from multiple insurers. However, you should declare you are making concurrent application to multiple insurers for financial underwriting purpose. If you cannot justify the high sum assured, the insurer will counteroffer you a lower sum assured or reject your application altogether.

Take for example, let’s say you have 4 dependents (1 spouse and 3 children) and the monthly expense for each dependent is $1000 a month for 20 years. The maximum coverage required without taking account of time value for money is 1000 x 12 x 20 x 4 = $960,000.  Obviously you need to purchase the Direct Purchase Insurance from at least two insurers.

The links to the Direct Purchase Insurance portal are mostly not obvious in the respective insurance companies’ websites. So I have compiled the list of links of the Direct Purchase Insurance as follows:

1. Direct Purchase Insurance from NTUC Income. Have to buy from its branches.
2. Direct Purchase Insurance from AIA. Have to buy from its branches.
3. Direct Purchase Insurance from Aviva. Have to buy from its branches.
4. Direct Purchase Insurance from Manulife. Have to buy from its branches.
5. Direct Purchase Insurance from AXA Life. Call customer service hotline to buy.
6. Direct Purchase Insurance from Prudential. Have to get quote and buy from its branches.
7. Direct Purchase Insurance from Great Eastern. Have to buy from its branches.
8. Direct Purchase Insurance from Tokio Marine Life Insurance. Have to buy from its branches.
9. Direct Purchase Insurance from Etiqa Insurance Pte Ltd. Can buy online.
10. Direct Purchase Insurance from Zurich Life Insurance. No information on the how to buy.
11. Direct Purchase Insurance from HSBC Insurance (Singapore) Pte Ltd. Have to buy at its branches.
12. Direct Purchase Insurance from Overseas Assurance Corporation Limited. Cannot find the web link.

Since most of the insurers require one to purchase the Direct Purchase Insurance at their branches, it also means there is a possibility that customer service staff may upsell you things you do not want.  If fact, the Direct Purchase Insurance could be the best form of lead generation for the insurers! Please note that there is nothing in regulation which prohibit the customer service staff to sell you other things. Also, it is possible for the insurer to impose the staff a sales quota just like relationship managers at the banks.

Premiums comparison

For whole life insurance, I cannot be bothered to compare because the whole life product from Direct Purchase Insurance is payable until either 70 or 85 years old. Nobody buys whole life with premium period so long. Typically it is 20 or 25 years limited premium.

So I only compare term insurance. I use a quote for male, non-smoker and birthday 1 January 1985.  Sum assured is $400,000 covering death ,TPD and CI. Coverage period is 20 years. Here are the results:

AXA Life turns out to be the cheapest and AIA turns out to be the most expensive.

How about comparing the term insurance with those that are purchased from financial advisers? Here is a table to compare:

As it can be seen that the Direct Purchase Insurance from AXA Life is much cheaper than the other 3 term insurance. However, a closer look revealed that the comparison is not apple to apple. In recent times, many insurance companies cover 37 critical illnesses. On the other hand, the Direct Purchase Term insurance covers only 31 Critical Illnesses inclusive of the Terminal Illness as part of the basic policy.

So, what are the additional 6 critical illnesses that are not included in the Direct Purchase Insurance? These are:

1. Poliomyelitis.
2. Progressive Scleroderma.
3. Systemic Lupus Erythematosus with Lupus Nephritis.
4. Loss Of Independent.
5. Other Serious Coronary Artery Disease.
6. Apallic Syndrome.

I have appended the six definitions of these critical illnesses below this blog. Judge for yourself whether these additional 6 critical illnesses are worth paying more for.

So should you engage a financial adviser or buy directly from the insurer?

The limit of $400,000 is not some magical value. It is based on a research called Protection Gap Study in 2012 which was commissioned by the Life Insurance Association. That research shown that the average protection needs of Singaporean is  $400,000. This means if you buy from the Direct Insurance Purchase, you will have no shortfall for life insurance – assuming you are an average joe Singaporean.

Here are things which a financial adviser can do:

1. A financial adviser can help you to calculate how much insurance you need. You do not need to guess. But then again, to purchase directly, you must (i.e. mandatory) use the Insurance Estimator hosted by CPF. It is one of the checklist you must do before the purchase. The link can be found here: Insurance Estimator. Hence, the role of the financial adviser for calculation purpose is being replaced by a software (opps).
2. A financial adviser can help you identify the difference between products. But than again, I have already highlighted that a major difference you need to note is that the Direct Purchase Insurance has 31 Critical Illnesses whereas other term insurance has up to 37 critical illnesses.
3. A financial adviser can help you to claim whereas if you buy directly you have do everything for claims yourself. However, given the high attrition rate of the finance industry, your financial adviser may not be available to help your claim anyway. All financial advisers look forward for a greener pasture, retire and definitely will die. You can test the call centre of the insurers by calling them.  In reality, many claims are done by the clients directly or through advisers (who were not the original advisers who sold the product) with authorisation from the client.
4. A financial adviser can provide you with a more holistic insurance solution. Not all insurance products are available on the Direct Insurance Purchase. Insurance products that are only available from financial advisers are: Early payout major illness, whole life with 25 years or less limited premium, disability income insurances, endowments, investment-linked policies and integrated private shield policies. As the Direct Insurance Purchase's riders must be the same as the basic sum assured, you can only buy term configuration of other combination (such as $500,000 covering death with $250,000 accelerating critical illness) from a financial adviser.
5. If you are looking for someone to help you do financial planning, you can approach a financial planner. A financial planner is always a financial adviser but a financial adviser is usually not a financial planner.  See:  What is the difference between financial planner and financial adviser ?

Still, consumers must be careful when they buy direct without advice. Here is a letter I wrote to Straits Times on why consumers must be careful when buying direct and why financial advisers must change their mindset otherwise they will become obsolete : Care Needed When Buying Insurance Direct.

Here is my advice to consumers: If you want advice and yet want to buy the low cost Direct Insurance Purchase, you may want to read this article: HERE.

Get the Guide on How to Interpret Benefit Illustration before you purchase direct

Before you go ahead to purchase the insurance directly, one of the document you will receive is called the Benefit Illustration. You will be asked to declare that you have read and understood the Benefit Illustration. You cannot ask the counter staff to explain to you the Benefit Illustration as that is constitutes advice.

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Appendix

Definition for Poliomyelitis

Definition for Progressive Scleroderma

Definition for Systemic Lupus Erythematosus with Lupus Nephritis

Definition for Loss Of Independent Existence

Definition for Other Serious Coronary Artery Disease

Definition for Apallic Syndrome