No Commission Life Insurance

Singapore - Consumers may be able to start buying basic life policies directly from insurance companies from as early as next month, bypassing financial advisers and saving on commission, the Monetary Authority of Singapore (MAS) said yesterday.

The much-anticipated move is aimed at giving consumers another avenue to buy insurance products and encourage more people to be insured. However, industry professionals told TODAY they do not expect the take-up rate to be high due to the limited coverage of the plans and the typically complex nature of insurance policies that many might have difficulty understanding.
            
“My guess is 10 to 20 per cent of people, which is not a big number, will buy directly from the insurance companies. The MAS has also imposed a maximum sum assured per person per insurer of S$400,000. If you want more, you will have to buy from another company, which can be cumbersome. I don’t think many people have the time and financial expertise to do everything on their own,” said Mr Christopher Tan, chief executive of financial advisory firm Providend.

The direct purchase initiative is a result of the Financial Advisory Industry Review (FAIR) introduced in 2012 to raise the standards of the insurance sector. Another initiative, a single information portal where consumers can look up and compare available life insurance products, will also be launched in April, the MAS said yesterday.

Last July, the MAS laid out the features of the term and whole life policies that consumers can buy directly from the companies.

It emphasised yesterday the direct purchase products will be “a new class of life insurance products for basic needs that is ‘retail-access friendly’.”

“It will be simpler as the features are broadly standardised. This allows a consumer to make straightforward product comparisons when deciding which (product) to purchase,” MAS deputy managing director Ong Chong Tee said yesterday. “Consumers who know what they want and do not need financial advice will be able to buy (the products) directly from life insurers. It will be cheaper as no commissions will be charged,” he added.

On concerns expressed by some financial advisers that their livelihoods might be affected by this initiative, Dr Khoo Kah Siang, president of Life Insurance Association Singapore, said this was unlikely.

“The products available through the direct channel are those with very simple proposition; there are safeguards to make sure people who purchase them really understand what they’re buying without advice,” Dr Khoo said. “But if you look at the range of insurance (products in the market), it’s very wide. They can also be very complex and because of the complexity, advisory is very important.”

In addition to providing advice, financial advisers also “follow up with clients if anything were to happen to them” — something that the direct purchase channel cannot provide, noted Mr Rave Peh, agency development manager at AXA Singapore.

Consumers concurred that the personal touch provided by advisers is hard to replace. “I would like to feel more secure, that there is someone I can trust, an individual to provide that connection to the insurance agency. I’m willing to pay commission to get that kind of service,” said Mr Steven Chung, head of events and programming at Sentosa Leisure Management.

Synergy Financial Advisers executive director Jeff Lee said the move could force the industry to improve. “If advisers don’t improve their skills and don’t add value, then they’re just out there to sell and will lose out. But if they improve their competency ... and give good advice to clients, I don’t think (the initiative) will put many out of jobs.” Lee Yen Nee, with Additional reporting by Angela Teng

Top Insurance Brand

Global leader in life insurance and investments, AXA, was recently named ‘Number One in insurance’ by Interbrand for the sixth consecutive year. According to Interbrand, the brand strategy and design consultancy whose “Best Global Brands” ranking has become an industry benchmark, AXA moved up six slots to 53^rd place, with a brand worth of $8.120 billion.

Some key achievements in 2014 such as expansion in new territories, investment in technology labs and start-ups, partnerships with leading technology companies and universities, and various CSR activities have been particularly highlighted by Interbrand to reflect AXA’s leadership in the insurance industry and its brand strengths.

According to Interbrand, “AXA is adapting intelligently to a changing world, strengthening its connection in both the enterprise and consumer spaces.”Interbrand has also assessed AXA as the Best Green Brand in the insurance industry worldwide; particularly underscoring its role in addressing climate change through improving the understanding of the environmental risks, as well as the reduction of AXA’s environmental footprint.

“We are all very proud to be the leading insurance brand for the 6th year in a row, one of the world’s 100 best brands across all industries. “AXA” is a strategic asset to attract and retain customers, partners and talents worldwide. The strength of our brand is instrumental to our expansion in higher growth markets and a competitive advantage in the digitization of our business,” said Véronique Weill, Chief Operating Officer of the AXA Group, whose headquarters are in Paris, France.

AXA is a global leader in insurance serving 102 million customers in 56 countries. In 2013, AXA released US$ 15 billion in benefits to its policyholders. AXA is also ranked as the 16^th largest corporation according to the 2014 Fortune Global 500 list and 33^rd by Forbes Global 2000.

Imortal Need No Life Insurance

Abhilesh Ranjan, 32, a successful businessman based in one of the fastest growing city in India, Gurgaon suddenly got worried about his family’s financial security. He is blessed with two children and both are studying in well-reputed schools. His parents get a decent level of retirement income from real estate and thus only his immediate family i.e. his wife and two kids are dependent on him.

So, what is keeping him awake at night? Actually, he recently came across an unfortunate incident wherein one of his friends Rajneesh Jain lost life in a car accident. Rajneesh and Abhilesh had similar profiles. The mishap was a massive setback for his family. Rajneesh was running a flourishing business and had a happy family with two kids, both studying in a good school.

It was just 5-6 weeks after Rajneesh’s demise, his family started bearing the brunt of financial crunch. Naturally, Abhilesh was feeling bad. Had Rajneesh been covered under a life insurance plan, things could be very different. Nothing can compensate the loss of a loved one, but life has to go on. No one wants his family to get into financial troubles and live a miserable life, even in his absence.

That explains the significance of life insurance cover.

Just look around. You will find several such stories. Of course, you cannot change the past or predict future. But you can always fulfil your responsibility towards your family by taking care of certain elements. Covering unforeseen risks is an imperative and there is no reason why you should not have sufficient levels of life insurance coverage.

Why do you need life insurance?
You need life insurance not for one reason but many. Life insurance not just provides you guarantee but it also lets you live with ease. Given that your life is exposed to various risks you need life insurance to:

• Fulfil your family’s financial requirements:
Sustenance is impossible without an intact cash resource. Your family is dependent on your income more than you are. You need to keep their present as well as future financial requirements in the view. Your family members need to carry on with their lives even when you are not with them.

Without you their financial sources will cease. So it is your responsibility to arrange for an alternative source of income for them or anything that can make them move on.

• Repay debt:
Loans and debts are an inseparable part of financial planning for most of the people. It gives you an additional source of funds. There is no harm in taking loans. However, you should also be able to pay it back what so ever is the case. If you have taken a loan you should definitely have a life insurance policy also. Having an appropriate life insurance plan will save your family to take the burden of repayment of loan in case you are no more. Calculate how much debt you need to clear and add it to the sum insured of your life insurance policy.

• Get emergency funds:
A life insurance policy can let you avail loan against the amount you have paid as premium. So it is not just for your family but also to fulfil your own needs.

• Avail other benefits
There are many riders available with a life insurance policy. These riders help you to extend the benefits you get from your life insurance plan. Besides death benefit, you can get many more benefits which add value to your plan. Disability benefit, accidental death benefit and dismemberment benefit, critical illness benefit, waiver of premium, accelerated death benefit and the list goes on. The rider you choose is subject to the kind of life insurance plan you choose.

How much does it cost?
Many cannot afford to pay life insurance premium. More cannot afford not to be insured!! If you can afford to pay life insurance - you probably have no need for life Insurance

Generation X & Y Life Insurance

A LIMRA study finds majority of Gen X and Y consumers believe they need more life insurance.  At the same time, less than 20 percent say they are very likely to buy life insurance.

“The study clearly shows that people recognize the value of life insurance and the risks they face being underinsured,” says Todd Silverhart, a corporate vice president at LIMRA Insurance Research. “Yet other financial priorities and confusion on what they need lead many consumers to postpone buying life insurance.”

Separate LIMRA research has identified nearly 19 million consumers who need life insurance but have become stuck during the shopping process.

Universal Life Insurance

 

A much-discussed insurance product lately is the universal index life policy. This type is best for people who need the reassurance of a guaranteed return, and have no place left to shelter income. But high fees and caps on returns are downsides.

How it works: As with most life insurance policies, your premiums go to the insurance company, which then invests the money in bonds, stocks, funds or other investments. The company hopes to make enough from premiums and investments so that it can afford to pay out benefits when you die.

With a universal index policy, part of your premium is invested in a fund that is connected to a particular index -- the Standard & Poor's 500, in many cases. When that index does well, you earn more interest, which goes into your cash value fund; this is a cache you can tap while you are alive.

Many policies allow for a flexible premium, and you can choose to add more to help you build up your cash fund. If you skimp on premiums, the insurer will take the money out of the cash value. But, should the cash shrink too much, the company may cancel the policy.

Pros. One of the biggest advantages of universal index life is the potential for growth, while you receive protection from volatile markets. Most of these policies guarantee that you earn a certain amount of interest each year. This might be a very low number, such as one percent or two percent (or even a guarantee that it doesn't fall below zero). That means at least you don't lose money even when the index goes down,

Your cash value, depending on the state you live in, might enjoy tax advantages and creditor protection -- meaning, if you declare bankruptcy, the cash stash is off limits from debt repayment. Plus, your cash fund usually isn't subject to the same penalties and restrictions that come when you withdraw early from a tax-advantaged retirement account.

Cons. Most of these policies come with fairly high fees. The commissions are often front-loaded. The costs can eat up your returns, so it can take years before your cash fund sees significant growth. Later in life, your premiums might go up, and leave you without enough in your cash fund to keep the policy in force.

Additionally, most of these policies have caps on returns. Many insurance companies only credit a certain percentage of the increase in the market to you. This means that you don't end up growing your cash value as much when the index does really well. In some cases, you might be better off just investing in an index fund on your own, without doing it through an insurance policy.

Overall, I still can see a place where these types of policies make sense. For me, an index universal life policy is an option to defer some tax if you are not able to participate in a Roth individual retirement account -- if perhaps your income is too high. Like any other financial tool, understand its framework and pitfalls.

Life Insurance Myth

Life insurance is not a simple product. Many elements that must be considered carefully in order to arrive at the proper type and amount of coverage. But the technical aspects of life insurance are far less difficult for most people to deal with than trying to get a handle on how much coverage they need and why. This article will briefly examine the top 10 misconceptions surrounding life insurance and the realities that they distort.

Myth #1: I'm Single and Don't Have Dependents, so I Don't Need Coverage
Even single persons need at least enough life insurance to cover the costs of personal debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid expenses for your family or executor to deal with. Plus, this can be a good way for low-income singles to leave a legacy to a favorite charity or other cause.

Myth #2: My Life Insurance Coverage Needs Only Be Twice My Annual Salary
The amount of life insurance each person needs depends on each person's specific situation. There are many factors to consider. In addition to medical and funeral bills, you may need to pay off debts such as your mortgage and provide for your family for several years. A cash flow analysis is usually necessary in order to determine the true amount of insurance that must be purchased - the days of computing life coverage based only on one's income-earning ability are long gone.

Myth #3: My Term Life Insurance Coverage at Work Is Sufficient
Maybe, maybe not. For a single person of modest means, employer-paid or provided term coverage may actually be enough. But if you have a spouse or other dependents, or know that you will need coverage upon your death to pay estate taxes, then additional coverage may be necessary if the term policy does not meet the needs of the policyholder.

Myth #4: The Cost of My Premiums Will Be Deductible
Afraid not, at least in most cases. The cost of personal life insurance is never deductible unless the policyholder is self-employed and the coverage is used as asset protection for the business owner. Then the premiums are deductible (Maximum RM6,000 per annum)

Myth #5: I Absolutely MUST Have Life Insurance at Any Cost
In many cases, this is probably true. However, people with sizable assets and no debt or dependents may be better off self-insuring. If you have medical and funeral costs covered, then life insurance coverage may be optional.

 

Myth #6: I Should ALWAYS Buy Term and Invest the DifferenceNot necessarily. There are distinct differences between term and permanent life insurance, and the cost of term life coverage can become prohibitively high in later years. Therefore, those who know for certain that they must be covered at death should consider permanent coverage. The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.

There is also the risk of non-insurability to consider, which could be disastrous for those who may have estate tax issues and need life insurance to pay them. But this risk can be avoided with permanent coverage, which becomes paid up after a certain amount of premium has been paid and then remains in force until death.

Myth #7: Variable Universal Life Policies Are Always Superior to Straight Universal Life Policies Over the Long Run Many universal policies pay competitive interest rates, and variable universal life (VUL) policies contain several layers of fees relating to both the insurance and securities elements present in the policy. Therefore, if the variable subaccounts within the policy do not perform well, then the variable policyholder may well see a lower cash value than someone with a straight universal life policy.
Poor market performance can even generate substantial cash calls inside variable policies that require additional premiums to be paid in order to keep the policy in force.

Myth #8: Only Breadwinners Need Life Insurance CoverageNonsense. The cost of replacing the services formerly provided by a deceased homemaker can be higher than you think, and insuring against the loss of a homemaker may make more sense than one might think, especially when it comes to cleaning and daycare costs.

Myth #9: I Should Always Purchase the Return-of-Premium (ROP) Rider on Any Term PolicyThere are usually different levels of ROP riders available for policies that offer this feature. Many financial planners will tell you that this rider is not cost-effective and should be avoided. Whether you include this rider will depend on your risk tolerance and other possible investment objectives.
A cash flow analysis will reveal whether you could come out ahead by investing the additional amount of the rider elsewhere versus including it in the policy.

Myth #10: I'm Better off Investing My Money Than Buying Life Insurance of Any KindHogwash. Until you reach the breakeven point of asset accumulation, you need life coverage of some sort (barring the exception discussed in Myth No.5.) Once you amass $1 million of liquid assets, you can consider whether to discontinue (or at least reduce) your million-dollar policy. But you take a big chance when you depend solely on your investments in the early years of your life, especially if you have dependents. If you die without coverage for them, there may be no other means of provision after the depletion of your current assets.

The Bottom LineThese are just some of the more prevalent misunderstandings concerning life insurance that the public faces today. Therefore, there are many life insurance questions you should ask yourself. The key concept to understand is that you shouldn't leave life insurance out of your budget unless you have enough assets to cover expenses after you're gone.

GST On Life Insurance

Staying healthy will cost even more as medical insurance fees, charges and premiums, go up next month. Although life insurance is exempted from the Goods and Services Tax (GST), policyholders must pay at least 6% more for medical and health-related insurance coverage.

The National Association of Malaysian Life Insurance Fieldforce and Advisers has appealed to the Government to exempt “necessity policies” covering hospitalisation and critical illnesses from the GST. Otherwise, many may surrender their policies or lapse in their premium payment.

“GST will be an additional cost for individual policies that are coming up for renewal. If a family of five with a medical policy pay a total of RM7,500 per annum, the additional cost to them would amount to RM450 yearly.”

He said many prospective clients and those planning on topping up their existing policies had adopted a “wait-and-see” attitude. They want to gauge the GST impact on their finances first because the new tax applies not only to insurance but to most of their daily expenses,” Kho said.

He warned that it was crucial for policyholders to understand that GST would impact all traditional and investment-linked policies which had medical, critical illness or personal accident benefits attached. For traditional policies, the GST is imposed on the premium. For investment-linked policies, it is charged on the insurance charges. For investment-linked policies, insurance charges escalated with age because of higher insurance charges.

For example, at age 35, insurance charges for the medical benefit alone is about RM422. At age 65, it rises to almost RM2,500 – exceeding the RM1,176 annual premium paid for the medical coverage alone. Some policyholders above age 60 might pay up to RM5,000 in annual insurance charges.
With a 6% GST imposed on insurance charges, many senior citizens may potentially lose their coverage or need to top up premiums to sustain their coverage.

For investment-linked policies, the annual premium may not increase as the GST and insurance charges are deducted from the policy’s cash value, thus eroding the accumulated cash value meant for retirement, children’s education and sustaining future premiums.

You need to keep tabs on the cash value or you may wake up at age 60 without a retirement fund.
Majority of more than two million life insurance policy holders nationwide had investment-linked and traditional policies with attached medical coverage.

Life Insurance Association of Malaysia (LIAM), in a statement, said fees and charges imposed on investment-linked policies and critical illness, medical and health and personal accident premiums were subject to GST. LIAM advised all policyholders to contact their insurance companies to find out the amount payable from April 1.

General Insurance Association of Malaysia (PIAM) said policyholders were required to pay the additional 6% as all general insurance policies were subject to GST “unless the risks are located outside Malaysia”.