A poor deal for consumers on single premium policies

Published in Straits Times Online on 20 October 2009

Recently, I was shown the benefit illustrations for two single premium policies sold by two different insurance companies.

I was surprised to find in both cases that the surrender value on the first year is less than 75% of the single premium and that it would take 8 years or longer for the surrender value to reach the breakeven point, i.e. exceed the amount that has been invested.

Although these policies pay a death benefit that is higher than single premium in the event of death, the cost of this protection should be relatively small and should not require such a large amount to be deducted.

There could be extreme situation where a high surrender penalty is justified, such as a sharp increase in interest rate, but in normal circumstances, this type of penalty and high charges are unfair to consumers.

In both cases, the policyholders were not aware about the implication of locking up a large sum of money for long periods on an investment that gives a rather poor yield. They did not get the proper explanation from the insurance adviser and sought my assistance.

The Monetary Authority of Singapore has asked the board and senior management of financial institutions to be responsible for achieving “fair dealing outcomes” for their customers.

I hope that the MAS would ask the insurance companies that issue this type of product to explain how the product could be considered as being fair to their customers.

Tan Kin Lian