Make traditional policies good for consumers

I wish to address the questions: What is wrong with traditional policies, such as whole life, endowment or critical illness, which have been sold for decades? Can the shortcomings be corrected?

The shortcomings are:
a) High upfront charges - as much as 160% of the annual premium
b) Lack of transparency
c) Fair distribution of bonus

These shortcomings can be overcome by:
a) Reduce upfront charges
b) Adopt the asset share method - improve transparency and ensure fair distribution of bonus.

Using the asset share approach, the insurance company has to give an annual statement to the policyholder showing the premiums paid, the charges taken out of the premium (for mortality risk and expenses) and the interest credited (based on the investment yield earned by the fund) and the asset share. The asset share has to be paid to the policyholder on the termination of the policy.

This transparency will help to reduce the upfront charge (as consumers will never agree to have 160% of their annual premium taken away). The transparency and competition will make the upfront charge to disappear one day (similar to opening a savings account in a bank!)

Some countries (e.g. Malaysia) have already adopted the asset share method and also placed a modest cap on the upfront charge. If a similar approach is adopted in Singapore, I will be happy to recommend the whole life, endowment and critical illness plans as being good for consumers.

tan Kin Lian