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Life Insurance – Where Should I buy?

Life Insurance – Where Should I buy?

In the previous two blogs, “Life Insurance – Do I Really Need it” and “Which Life Insurance Should I Buy”, I talked about various factors one needs to consider when buying life insurance. This is the last blog of this series where I have tried to capture options through which Singapore residents can buy insurance and questions they should ask to clarify plan features.

Each sales option has its own pros and cons and different genres of people will have different preferences. Traditional options include agents which will typically be tied to an insurance company and will sell insurance plans for that company only and banks who would sell insurance plans of a particular insurance company or a number of companies. Singapore also has the option of Independent Financial Advisors (IFAs) who sell policies from different insurance companies and will typically relate a particular insurance plan to the needs of their customers. More recently, two other options have been emerging – insurance sales through telephone and online.

Buying through Agents

This is most common approach for buying insurance plans and typically insurance agents would be your relationship manager with the insurance company. Insurance agents receive a commission for selling insurance policies and customers typically perceive having an insurance agent a sign of the ease with which they can address their insurance matters.

There are pros and cons of buying insurance plans through agents. On one hand, you would have someone who would deal with your insurance matters and help you in claims disbursement or any queries, but on the other hand, you typically end up paying higher premium rates (due to cost of commission factored in) and will only have option of buying through one insurance company unless you have multiple agents.

One consequence of having just one insurance agent is that you may not get the right advice at all times and may not get to see options from other insurance companies. In addition, you may be sold an insurance plan which you don’t really require or you may be advised to surrender your policies when there is no need and it may be detrimental to the policy values that you would otherwise receive. The

Did you know that on an average 20% of insurance policies lapse or surrender after the end of 4 years? Surrendering early may not be beneficial and you may lose out a lot of value, so check your surrender benefits and upside (if you don’t surrender) before taking the decision.

Monetary Authority of Singapore (MAS) has put in strict controls around monitoring agents’ behavior and these are tracked by insurance companies. It is therefore important to question the advice provided by insurance agents and if in doubt ask insurance company’s representatives as well.

Buying through IFAs

Buying through IFAs has an advantage that you get to see a comparison of different insurance plans and choose the best one. The advice typically is richer and more informative and depending on the IFA, you may also receive advice regarding life planning. Most IFAs in Singapore also provide advice around estate planning and investments and therefore they can be a good one stop service for managing your finances. IFAs are also heavily regulated by the MAS guidelines and therefore the risk of mis-selling is lower.

One downside of buying through IFAs is that you may only be shown products which offer high commission/incentives and therefore it is important that you do some research of various available plans before going to your IFA. Another aspect to consider is the premium rates offered through IFAs as insurance companies pay different commission levels to different channels and premiums accordingly vary. IFAs typically charge higher commissions than tied agents and therefore insurance plans could be costlier whilst buying through IFAs.  

Did you know that the commission paid to insurance agents/IFAs affects your premium rates significantly? In the benefit illustration provided to you during the purchase of an insurance policy, total commission paid is indicated by “total distribution costs”. As per the latest statistics from the MAS, commissions paid in the first year can be in the range of 30%-50% of the premium. The new FAIR guidelines from the MAS have put restrictions on how much commission can be paid in the first year.

Buying through Banks

Banks typically sell savings type products as these products gel well with their other offerings. You will find the focus is generally on short term investment products as the bank’s staff are more familiar with these type of products. Certain banks however have exclusive partnership with insurance companies and they sell a whole range of insurance plans from protection to savings to investment linked. Key while buying from banks is to fully understand the risks involved in the insurance plans and ensure that you get a comparison of insurance product with other investment products they have on offer. In some countries, banks have been notoriously famous for mis-selling insurance plans so you may want to ensure that particular insurance plans are meeting your life needs and are helping you in your long term planning.

The New Era

At some point, we all have received a call from our credit card company or bank asking if we would like to buy travel insurance or a simple accidental cover or hospital cash cover. This is a new method of sales which insurance companies adopt these days where simpler insurance plans are sold through phone. The requirements are simple and do not require any medical underwriting. In addition, these plans may be cheaper since the costs involved are lower. It is however tempting to buy insurance plans over phone and you should be careful that you are not mis-sold or you do not end up buying an insurance plan which you do not require.

Another interesting medium through which you can buy insurance these days is online. Basically, insurance companies will have their online portal and customers can choose from the plans they believe are most applicable to them. These plans would generally be simple and expectation is that customers already know which insurance they need. Online insurance is already quite popular in Western countries and is also gaining traction in Asia due to its ease of purchase and also lower costs.

One downside of buying insurance through telephone or through online channel is the lack of assurance that you will be serviced appropriately. Whilst I am sure insurance companies will entertain complaints and requests in a similar manner, not having an insider (!) to help you through insurance system may be discouraging. Insurance companies are addressing this through online chat mechanism and responsive customer care. If you are looking to buy simple products, buying on phone or online may be a good idea.

Summary

Different options for buying insurance have their own pros and cons. While some options provide assurance of attention and servicing, other options provide attractive premium rates. The thing to keep in mind is that you have investigated the insurance plans appropriately and have ensured that these meet your needs. In addition, do not hesitate to ask questions to your agents or IFAs if you are in doubt.

Do you ask your insurance salesperson?

  • Are illustrated benefits guaranteed or they can change?
  • Are charges levied on your policy guaranteed or they can change in future?
  • What is the total yield to policyholder? How does it compare with other available investment options?
  • Is there an option to buy a particular insurance plan directly from the insurance company? Will those plans be cheaper?
  • What rights do I have if I am not satisfied with insurance company’s response to my queries?
  • Are there any exclusions or waiting period that will apply on your policy? What is the level of surrender penalty if you need to surrender early?

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