Unless you’ve been drinking the elixir of immortality, you need insurance. Injuries, ailments and the inevitable death will catch up, and they may catch you off guard, but that is no excuse for not getting a robust insurance coverage.
Maybe sky-high premiums put you off. Maybe you are wary of pushy insurance agents who trick you into buying what you don’t need. Either way, if these are the culprits keeping you from meeting your insurance obligations, here is a tailor-made solution for you.
It’s called direct purchase insurance (DPI). We have answers to 9 important questions you’ve always had in mind about DPI but didn’t know where to look.
Question 1: What is direct purchase insurance?
If online shopping was a university we would all be double PhDs for sure! Thanks to DPI, you can add insurance to the list of products you can compare and buy online without any need to go through a third party. Term life or whole life insurance, you can buy it directly from the insurance companies.
And because it is sold without financial advice or cut to agents, the premiums are much lower than standard insurance products.
Question 2: What are the types of covers a DPI offers?
There are two main types of covers offered by direct purchase insurance:
- Term life with total and permanent disability (TPD) cover and an optional critical illness (CI) rider.
- Whole life with TPD cover and an optional CI rider.
Question 3: Is there a cap on the insured amount?
Yes. The maximum sum assured for direct purchase insurance is set at S$400,000, on a ‘per person per insurer’ basis. For whole life DPI, there is a sub-limit of S$200,000. This is to mitigate your risk of buying beyond your means.
Question 4: What is the difference between term life insurance and whole life insurance?
Term life insurance
A term life insurance is for your loved ones. You pay a small premium for a long period of time (anything between 15-25 years) and when you die (before the policy matures), a lump sum is given to your beneficiaries. If you are still alive at the end of the policy, you will receive no benefit.
Whole life insurance
Like term insurance, your beneficiaries will receive a payout when you die. However, the main difference here is that they will receive this benefit no matter when you die. In case you outlive the maturity date, you will receive a sum, though it will be lesser than the one given at the time of death.
You should also know that the premiums paid by you here are invested, making this a protection plus investment plan. Oh, by the way, you can even take out a loan against the cash value you have built over the years.
Question 5: What is the policy coverage period?
Term life insurance
Term life DPI has products for those who are looking at short-term as well as long-term coverage. Here, the policy coverage period has three variations, with the premium payment period matching the policy coverage period.
- 5 years, with provision for renewal
- 20 years
- Up to 65 years of age
Whole life insurance
With whole life insurance, the catchword is flexibility. Are you the kind who prefers to pay higher premiums for a shorter payment period or vice versa? Take a good hard look (or two or three) at your health and your finances before you make a decision.
You will be offered two variations to the premium payment period:
- Payment up to 70 years of age
- Payment up to 85 years of age
Question 6: How did direct purchase insurance start operations?
It was in 2012, that the Monetary Association of Singapore (MAS), constituted a panel called Financial Advisory Industry Review (FAIR) to raise the advisory industry standards. One of the key recommendations of the report (presented in 2013), was to allow insurance companies to introduce a simple suite of direct purchase insurance products, making it more convenient for Singaporeans to get insurance cover.
Launch of the scheme
In April 2013, the direct purchase insurance scheme, a first of its kind in the world, was rolled out. To arrive at the per person maximum sum assured limit of S$400,000, MAS took into account the protection need of the average working adult in Singapore which is estimated to be ten times their annual income.
Along with this, MAS also launched ‘compareFirst’, an interactive web portal that allows customers to compare and review the features and premiums of different products offered by competing companies before making a decision.
Although many insurance companies slowly started making the shift to selling DPI policies online from 2015, it was in March of 2017 that the MAS issued iron-clad guidelines to ensure consumer protection. These include providing comprehensive resource links for the customers and setting up internal controls and policies related to online insurance purchase.
Question 7: What are the pros and cons of direct purchase insurance?
If insurance was a piece of clothing, it would be a tank top. No matter what others say, you really have to pick one that fits you. In the world of insurance mumbo-jumbo, DPI seems like a breath of fresh air. But should you get one?
Here are some pros and cons to help you decide.
- One click and you can not only compare policies of different insurers but also purchase them without having to go through a financial representative
- In the absence of commissions, premiums are l-o-w by at least 10-20 %. Enough said!
Perhaps, this should have gone at the top. You know that old adage about insurance being ‘sold’ not bought? Thanks to DPI that can change. You don’t have to worry about smooth talking agents upselling you with products you don’t need
- Don’t you feel like a football sometimes? Being kicked from one place to another to obtain the necessary paperwork to get your policy going? You won’t feel like that here. All you need to do is fill out some details online. Once you get a quote back from the insurance company, you choose and pay. Easy peasy
- Working with an insurance agent is a slow (sometimes painful) process. But you have the cushion of chewing the brains of a professional as opposed to doing everything on your own
- Did you take a double take on the maximum sum assured? We did too. It would probably be just about enough for many Singaporeans but take in your loans and liabilities into consideration and your protection figure could be higher. You may have no other choice but to take multiple policies in such a case, which will actually bump up your premiums — not bring it down.
- When it comes to coverage for total permanent disability, DPI would put you at a disadvantage. A DPI plan takes into account only the loss of any 2 out of 6 limbs but a non-DPI plan includes the loss of ability to perform two or three daily activities in its definition too
- Same is the case with critical illness. DPI products cover 30 critical illnesses. Non-DPI products cover 37. You cannot argue with the Math!
Question 8: Who will benefit from buying a direct purchase insurance policy?
As a young tech-savvy Singaporean who is adept at using the internet to keep yourself informed, there is no reason why you shouldn’t be able to use your own judgement when it comes to insurance. A direct purchase insurance policy is perfect for you in this case. Interested in a low premium, zero-drama basic term policy as an add-on to your other policies? Meet DPI. We are sure you will hit it off.
Question 9: What are the opportunities and challenges for direct purchase insurance in Singapore?
In September 2016, a little over a year after the launch of DPI, the Life Insurance Association (LIA) noted that only about 1,000 policies had been purchased. The idea that you can buy insurance without needing to consult with an expert was, not surprisingly, a hard one to swallow for most people.
Meanwhile, the LIA, in its 2017 annual results revealed that when it comes to distribution channels, tied representatives and bank representatives still garner the majority share with 75% of weighted premium while DPI accounts for just 6%.
A PwC 2012 report titled ‘Insurance 2020: Turning change into opportunity’, notes that in a survey of US customers, 50% of those between the age of 18-25 said they prefer direct purchase insurance. This is because of the simplicity of the process. This represents a big market to tap. With their good health and young age, the entry level customer will naturally prefer DPI due to the basic coverage and low premiums.
Think savvy Singaporeans are all set with their insurance? This may come as a shock to you. Life Insurance Association(LIA)’s 2017 report shows that the protection gap (the difference between protection needs and available resources) have gone up by 20% in the case of mortality protection and a whopping 80% for critical illnesses.
How best can this gap be filled? That’s the real challenge facing Singapore today and the growth of direct purchase insurance can make a difference.
You may also like: