According to a release by the Life Insurance Association Singapore (LIA), qualitative analysis of why Singaporeans remain under-insured revealed two major factors: budget constraints and lack of understanding of their own protection needs.
Understandably, these two concerns are weighty enough to give the average Singaporean pause. Life insurance products often require a hefty commitment, both in time and finances. There is also the possibility of buying the wrong plan, which results in a waste of money. Additionally, jargon and narrow definitions can make it difficult to understand how to make a successful claim.
Lack of Confidence Results in a Protection Gap
These complaints are not new; they have been headlining the ongoing narrative around insurance in Singapore.
However, these misunderstandings do more than simply obscure the truth from consumers. The notion that life insurance is not affordable, inscrutable or difficult to claim can stop those with a genuine need from working out their optimal coverage, either with the help of an agent or through self education.
Without an accurate assessment, it is difficult to come to a fair and balanced view of the coverage needed. It is also not easy to determine an appropriate budget for insurance under these circumstances.
As a result, Singaporeans remain under-insured, with portions of the population saddled with a protection gap that renders them vulnerable to various risks.
But it need not be this way.
Bundling Obscures Value
Life insurance policies can seem expensive because of prevailing strategies to sell a complete package – covering all needs and ensuring higher customer loyalty and/or dependence.
This drives up premiums, pricing consumers out of their budgets, while strengthening the idea that insurance is expensive or even unaffordable.
Another barrier that bundling causes is the difficulty for consumers to perceive the value of what they are being offered.
As noted in LIA’s report, the benefits of insurance are perceived to be intangible (buying in case you need to make a claim sometime in the future; in some cases, you may not be around to see your benefit) and conceptual (many consumers end up not needing to make claims for certain plans). This is at odds with the usual expectation of immediate gratification and tangible rewards in exchange for spending money.
When dealing with wary customers distracted by other more immediate concerns (such as children’s needs and wants, elderly dependants, etc.) a back-to-basics approach could cut through the clutter and build trust.
To achieve this, consumers need a no-frills alternative to the complicated packages that are currently available.
Term Life Resets the Conversation
Budget-constrained Singaporeans unsure of their protection needs could benefit from Term Life insurance due to its flexible and low-cost nature.
Among the purest form of life insurance available, a Term Life policy allows consumers the freedom to choose their duration of coverage, as well as their coverage amount. (An online calculator or an agent can help determine optimal coverage level.)
A Term Life plan can be terminated or renewed as desired, often without the need for additional health checks or other such fuss. This is ideal for customers who are unsure of the need or ability to continue.
They may also easily switch from a Term Life plan to other life insurance plans if desired, whereas going in the other direction may not be as easy.
And perhaps the most compelling advantage of Term Life insurance is the relatively low cost of premiums. When other life insurance policies (such as ILPs or Whole Life) prove to be out of budget for cash-strapped Singaporeans, Term Life plans may offer an affordable alternative, providing similar levels of coverage at lower cost.
Term Life plans are also straightforward and easy to understand, with no hidden fees or surrender penalties (such as one might find with endowments). This may prove preferable for consumers wary of getting caught in long-term, onerous contracts.
Of course, Term Life plans are not without their drawbacks. Term Life fulfils mainly one key function: protection. It offers financial protection against unexpected life events such as death, critical illness or disability through a payout when such instances occur. It does not accrue cash value or generate investment returns, unlike other types of life insurance.
Thus, when a Term Life policy is terminated without claims, there is no payout to be collected. The only time a Term Life plan pays out is when a claim is made.
Because of this, on its own, a Term Life plan is not useful for accumulating funds for retirement or similar financial goals.
However, if paired with an appropriate savings or investment vehicle (such as endowments, annuities or equities) a Term Life plan can be an integral part of a simple yet effective portfolio, providing crucial coverage during your wealth-accumulation years.
Back to Basics
The fundamental purpose of insurance is hedging against risk in an unpredictable universe. However, the need to serve multiple financial needs has created a rich and diverse array of insurance products that could leave less savvy customers unsure of how to go about meeting their needs.
Going back to basics can help insurers reach and help such customers, while demonstrating their commitment to the core tenets of the industry.