From The Invest Editor

Thinking of buying insurance from a bank?

Remember, endowment plans are not fixed deposits

Walk into a bank and you will find a myriad of insurance and investment products. Over the years, banks have evolved to be more than simply a financial institution where we park our cash, obtain loans and credit cards.

Offerings of insurance and unit trusts in banking halls have expanded. This is partly boosted by expensive tie-ups - running into the billions of dollars - between banks and insurers to sell insurance products via banking channels, also known as bancassurance.

For example, in April, DBS Bank signed a 15-year bancassurance partnership with Canadian insurer Manulife resulting in the bank pocketing $1.6 billion. DBS' partnership with Aviva expires at the end of this year.

It is easy to pinpoint the reasons why insurers would pay seemingly obscene amounts of money to make use of the banks' networks.

Goodwill is one. After all, banks typically enjoy a high level of trust with their customers. Young or old, we instinctively view banks as safe havens for our savings.

Take your time to understand the products, the pros and cons, and ascertain if they are really suitable for you. Is it a good fit for your financial goals, budget and risk profile? Make it a habit to compare first. Consumers are strongly encouraged to compare and understand the wide variety of insurance products before making a purchase. Check out the website - a portal that compares insurance products - to make an informed choice.

We have a sense of security when we have dealings with a bank.

Many of us grew up with the expectation that these are "big, strong and friendly" institutions that will stand right by us to keep our savings safe and, in the case of fixed deposits, our principal guaranteed.

Another reason would be the billions of dollars laying idle as cash deposits. Singaporeans are a conservative lot and a large part of our assets is in fixed deposits and savings.

It is no wonder sales via bancassurance are almost neck and neck with those of tied agents.

From just 15 per cent of total weighted premiums in 2001, the bancassurance slice of the pie jumped to 38 per cent or $823 million in the first nine months of this year.

This is just slightly below the sales chalked up by tied representatives which amounted to 40 per cent or $866.3 million.

What is interesting is that banks sell fewer policies but because these are typically big endowment plans, they have significantly higher premiums.

This explains why only 13 per cent of all policies were sold via bancassurance during the three quarters ended Sept 30 compared with 60 per cent through tied agents.


It is all well and good if the tie-ups lead to happy customers who convert their savings to suitable financial investments that make their monies work harder.

But recent statistics from the Financial Industry Disputes Resolution Centre seem to indicate otherwise. Over the past decade, banks and finance firms have drawn the most number of complaints from consumers at 3,998 or 46.5 per cent of all grievances. The bulk of the complaints - 3,336 - related to market conduct issues, including aggressive sales tactics, misrepresentation and inappropriate advice.

Financial advisers and brokers drew 395 complaints or 4.6 per cent while there were 2,035 gripes filed against life insurers, a 23.7 per cent share.


Here are five potential pitfalls to bear in mind before you commit at the bank.


A common refrain among dissatisfied policyholders is that they had wrongly believed endowment plans work like a fixed deposit with fully guaranteed values.

Perhaps it is partly to do with the bank representative's sales script. Endowment plans are typically pitched as a savings product where the customer can earn higher interest.

That was how it was communicated to me at a bank recently. The representative conveniently omitted the word "insurance". It was when I realised that this "savings product" has a tenure of 10 years that I asked if he were referring to an insurance plan.

With the current lower guaranteed payouts and lower net returns from such plans, they cannot be categorised as "safe" products like fixed deposits. Furthermore, some consumers are unaware that if they do not proceed with the endowment plan after the first or second year, they may lose all the premiums already paid.

In fact, with the exception of a few that have fully guaranteed benefits, endowment plans should be seen as investment products that carry risks.


When we enter into a transaction, it helps to be clear about the other party's agenda and objectives.

Hopefully, the bank representative has been adequately trained to advise you on your financial needs. But how is he compensated?

As part of the "balanced scorecard" initiative, banks tie part of the representative's remuneration to qualitative factors such as how well they perform with customer appointments and servicing.

But most banks still impose threshold targets which the representative has to achieve, failing which it may result in termination in a worst-case scenario.

This is how it works.

Take, for example, an insurance plan with annual premiums of $6,000 for 20 years. The "revenue points" from this sale amount to 6,000 multiplied by a revenue factor of 0.6 which equal 3,600 revenue points.

Different insurance plans carry different revenue factors. Typically, the longer the insurance plan's tenure, the higher the revenue factor.

A newly recruited bank representative may have a monthly sales quota of 20,000 revenue points while that of a senior representative could range from 30,000 to 50,000. In addition, they may have other targets like selling a specific value of unit trusts per month.

If they exceed the quotas, they get additional monetary benefits.

If they fall short, they may get only their basic pay. But if they are consistently unable to hit the quotas, they might be asked to do a non-sales job or may lose their job.

High quotas may result in a representative pushing unsuitable products to meet his targets.

Another factor that may influence a representative's sales behaviour is how seriously he takes such products and advisory offerings as his professional career.

Ask yourself this: Unlike most tied insurance agents and "independent" financial advisers, who see financial advisory as a long-term career, is it the same for the bank representative? Or is he trying to earn as much as possible for a couple of years before he is promoted or rotated to another bank function, or jump ship to another bank. If so, then the potential for moral hazard is higher.


Most insurance plans sold at banks are typically qualified as "guaranteed issuance offer" (GIO) products. They require no medical underwriting, that is, they can be sold regardless of your health condition. This increases the  efficiency of representatives as they could be sold on the spot without the need to wait for a medical test.

The only requirement to buy a GIO life policy is that you can pay your premiums.

As such, these products have negligible or nominal protection elements even though they are classified as insurance.

When a bank representative focuses on a narrow range of products, can "holistic" financial planning take place?


Do not give in to the pressure of buying insurance on the spot, be it at a bank or a road show.

Take your time to understand the products, the pros and cons, and ascertain if they are really suitable for you. Is it a good fit for your financial goals, budget and risk profile?

Make it a habit to compare first.

Consumers are strongly encouraged to compare and understand the wide variety of insurance products before buying. Check out the website - a portal that compares insurance products - to make an informed choice.

Besides comparing prices, features and payouts, another important comparison factor is the illustrated yield to maturity or net returns figures which will be made available soon in benefit illustrations of participating policies like whole life and endowment plans.

These illustrated net returns would be net of policy expenses such as mortality charges, management expenses and distribution costs, which include commissions and other costs.

Many consumers usually do not know what to ask. Without the yield to maturity projected in the benefit illustration, it is up to the honesty of the adviser to explain to the customer that the net returns can be lower than the projected investment returns - 4.75 per cent and 3.25 per cent - of the life fund.

So use the illustrated net return figures to compare with other insurance plans. But don't stop there. With rising interest rates, go one step further and compare with other investment products such as the risk-free and flexible Singapore Savings Bonds, while bearing in mind the risk levels.

Shopping around can definitely help you find the best value.


Do not be swayed by the gifts and incentives dangled by banks.

These may range from appliances like handheld massagers, airfryers, shopping vouchers and even entitlement to what seemed like "high" fixed deposit rates for a separate savings product for a specific timeframe.

For instance, Ms Anna Ho (not her real name), 20, bought an endowment plan from a bank. On the same day, she was persuaded by the same bank representative to buy a second endowment plan after being shown a table of shopping vouchers.

In another scenario, Madam Mary Low (not her real name), 60, was told by a bank that she could earn yearly interest of 13 per cent for three months for a separate cash deposit, together with the purchase of the endowment plan.

However, she did not realise that the effective rate works out to a lower 3.25 per cent for the three month-deposit.

She proceeded to close her one-year fixed deposit at another bank just to shift the funds over.

Ignore the noise and buy only because the product suits your financial needs, and is affordable.

A version of this article appeared in the print edition of The Sunday Times on November 15, 2015, with the headline 'Thinking of buying insurance from a bank?'. Print Edition | Subscribe