Whole life, endowment policies to be more transparent

There will be more transparency on whole life and endowment insurance policies under a new initiative from the Life Insurance Association (LIA) to improve disclosure standards.

A key reform will involve including the projected yields to maturity or net returns in the benefit illustration of these participating life or "par" plans.

Premiums paid by policyholders for their "par" plans go into a common pool called the "par" fund.

They are invested in a variety of assets, with bonuses paid out from surpluses.


With additional information... consumers can make a more informed choice when deciding which policy to buy.

MR SEAH SENG CHOON, executive director of Case

These traditional policies are popular in Singapore, with 3.8 million "par" policies with total assets of about $88.8 billion as at Dec 31 last year.

A benefit illustration is designed to show the benefits and costs relating to the policy. It has two projected investment rates of return, one at 4.75 per cent and one at 3.25 per cent.

Once the initiative is implemented, benefit illustrations will include two illustrated yields to maturity or net returns based on the two projected investment rates of 4.75 per cent and 3.25 per cent.

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.

The consumer watchdog and industry practitioners have backed the upcoming changes.

Mr Christopher Tan, the chief executive of financial advisory firm Providend, said: "For every one dollar of premium, a portion goes to pay mortality charges, distribution costs and so on.

"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 are lower than the projected investment returns of the life fund.

"It will be a lot clearer and can help customers make better comparisons on what they are getting versus if they were to put their savings in other products."

Mr Seah Seng Choon, executive director of the Consumers Association of Singapore, said: "With additional information, such as the projected yields to maturity of the policy, consumers can make a more informed choice when deciding which policy to buy."

The LIA told The Straits Times it intends to reflect the illustrated net returns in the comparison CompareFirst.sg website as well.

A version of this article appeared in the print edition of The Straits Times on November 11, 2015, with the headline 'Whole life, endowment policies to be more transparent'. Print Edition | Subscribe