Many may have heard of DirectAsia selling motor insurance online. However, what is little known is DirectAsia’s online term life insurance which was launched on 9 October 2013. The term life insurance is underwritten by AXA Life.
This online purchase is not the same as MAS’ push for life insurers to sell directly. DirectAsia is still a middleman which takes commission from AXA Life. MAS’ idea of direct insurance purchase removes the middleman entirely. But what we can see is that as early as October 2013, MAS and LIA have already given the green light for the selling of term insurance without any form of financial advice.
Some interesting features about using DirectAsia to buy term insurance are:
- Immediate quotation of the premium for the term life insurance
- Online health questionnaires
- Online payment and
- Do not need to meet any human being.
(There are some financial advisers and their firms which tried to sell insurance online but actually those were merely lead generations as you still need to meet a human being to sign all the forms.)
The DirectAsia term life insurance maximum coverage is $500,000 and only covers death. If a total and permanent disability rider is to be included, meeting up with an insurance agent is required. Coverage for critical illness is not permitted.
I decided to try out the system for a male, non-smoker and birthday on 1 January 1984 (i.e last birthday is 30 years old). The death benefit chosen is $500,000.
The monthly premium quoted was $22.40. I was not given a choice of having an annual premium mode. However, the term coverage is only for 1 year. The premium goes up every year upon renewal. The premium for each of the years for the first 5 years is guaranteed. Hence, the premium for the 6th year is anybody’s guess.
DirectAsia / AXA Life 's quotation for a male, non-smoker, last birthday 30 covering death of $500,000
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Total distribution cost (cumulative)||$26.88||$27.56||$28.58||$29.56||$31.06|
I just pick another product called NTUC Income iTerm for comparison. The main policy covers death and TPD. For the exact sum assured, the premium is $269.15 annual premium mode. For monthly premium, it is $23.25. The coverage term is 5 years because this is the minimum coverage period allowed. At the end of 5 years, the policy automatically renews for another 5 years.
NTUC Income iTerm's quotation's for male, non-smoker, last birthday 30 covering death & TPD of $500,000
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Yearly premium (monthly mode)||$23.25||$23.25||$23.25||$23.25||$23.25|
|Total distribution cost (cumulative)||$100||$112||$117||$123||$128|
As it can be seen that although NTUC Income iTerm premium is more expensive than DirectAsia / AXA Life initially, the latter becomes more expensive in the third year.
The total premium for DirectAsia / AXA Life over the 5 years is $1,436.32. For NTUC Income’s iTerm, the total premium for the first 5 years is $1,401.00. The difference is $35.32. Although this saving may not a lot but by buying online the client:
- Does not have anyone to explain the terms of the product;
- Has no coverage for TPD.
- Waive his rights to Section 27 of the Financial Advisers Act;
- No recourse through FiDREC since the client is his own financial adviser and cannot claim to have be ‘cheated’; and most importantly
- Risk of not declaring material information which will render the policy void. As I was answering all the questions for DirectAsia’s term insurance, there was no space to type in any declaration that is not part of the questions. It appears to me that the person who gave the web specification to the IT designer did not have any real experience in dealing with clients who often have issues that are not part of the questions and yet is considered material information to the underwriter.
I find it also interesting that NTUC Income iTerm pays the ‘middleman’ more compared to AXA Life and yet the former is still more competitive.
If all middlemen were to be removed for both cases, NTUC Income iTerm will be cheaper than DirectAsia’s AXA Life term insurance by (1436.32 -31.06) - (23.25*5*12 - 128) = $138.26.
If you want to buy a product without advice or through a faceless entity, here are some points to note:
- Waiver of legal rights is a cost to you. You need to factor in that cost.
- If you buy a product with certain missing features, you could end up spending more when you need to buy those missing features.
- When you buy an insurance product, you are entering into an insurance contract. Normally people enter into a contract with help from experts.
- The importance of comparisons. Some insurers pricing can really be very expensive. The so-called online purchase from DirectAsia / AXA Life shows it is expensive.
On the last point, the web aggregator that MAS is pushing will reveal which insurers’ products are the least competitive. Due to the minority market share of the IFA industry, most clients do not know that the products they bought were extremely expensive.
For myself, I just cannot wait for the web aggregator and the direct channel to happen. At last, I can focus on advisory without the need to transact.
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