No More Benefit Illustration for Single Premium ILPs
Due to a change to the regulatory requirements by MAS, it is no longer permissible for the insurance companies to provide any benefit illustrations for single premium and recurring single premium investment-linked plans (ILP). The change takes effect from 1 Feb 2014 onwards.
This is to avoid misinterpretation of investment projections.
This is a positive change as some people might misunderstand the projections given in the benefit illustrations as a targeted or guaranteed return. An unethical agent can also use it to mislead consumers.
The change aligns the sale of unit trusts sold via ILP and that bought independently. After all, you don’t receive any benefit illustrations (of projected returns) when you buy unit trusts from other sources.
However, MAS has decided not to implement this change to regular premiums ILP at this stage. I hope that they are able to implement some kind of change as most of the ILPs being sold are regular premium ones and the projections given in the benefit illustrations can be very misleading.
Besides the removal of benefit illustrations, there will be a requirement to disclose the Total Distribution Cost (TDC). TDC includes cash payments in the form of commission, cost of benefits and services paid to the distribution channel. The sample wording looks like this:
The Total Distribution Cost that the Company expects to incur in relation to your policy is [up to] x% of Single Premium/Recurrent Single Premium* [depending on conditions where applicable] [and up to Y% of the Top-Up Premium depending on conditions where applicable] [plus up to Z% per annum of the fund value, depending on conditions where applicable]. These costs include cash payments in the form of commission, cost of benefits and services paid to the distribution channel. The Total Distribution Cost is not an additional cost to you; it has already been allowed for in calculating your premium.
The key figures that consumers should look out for are X, Y and Z. If they are too high, please run for cover. As a benchmark, when you buy unit trusts independently, the percentage for X and Y can range from 0-5%. Online platforms charge between 0-2% for X and Y. Z can range from 0-0.5%.
The last sentence about the TDC not being an additional cost to you should be ignored. The TDC is a direct cost to you as it will be deducted from your invested amount!
You may refer to the FAQ below for further clarification on the new regulatory changes.
Why is the Benefit Illustration (“BI”) for Single Premium (“SP ILP”) and Recurrent Single Premium Investment-Linked Plans (“RSP ILP”) no longer provided at point of sale?
The returns on ILPs are not guaranteed and can be volatile. Discontinuing the BI in the sales of Single Premium and Recurrent Single Premium ILPs aims to avoid any misperceptions of the returns consumers can expect from their policies. It also aligns the practice with Unit Trust (UT) industry, for which projections are not allowed.
Why is the BI only prohibited for SP ILPs and not regular premium ILPs?
The main objective of the BI for ILPs is to illustrate to customers the potential impact fees and charges can have on the policy, assuming that the policy earns a 4% and 8% investment return per annum. Where a policy has significant protection features, fees and charges that are related to insurance costs can have a material impact on the net return a policyholder receives on the policy.
As such, the BI will at this stage only be removed for Single Premium and Recurrent Single Premium ILPs as such products are largely investment in nature, with very minimal protection features.
What is the impact to me as a customer?
This change only affects SP ILP and RSP ILP. There will be no change to Regular Premium ILPs. The other existing point-of-sale materials remain unchanged and will be provided for all ILPs,
i.e. Product Summary, Product Highlights Sheet, Fund Information Booklet / Prospectus.
As this change is to align the sales processes of the life insurance industry and the UT industry, it is not expected that this change will impact the customers in any significant way.
Should you have any further queries about the change, please contact your representative of the respective insurers for more information.
Can I request for an updated Benefit Illustration for SP or RSP ILP after the policy is in-force?
As this change is to align the sales processes of the life insurance industry and the UT industry, no post-sale BI will be provided for existing policies bought before 2014 and policies bought on or after the effective date of the new practice (change).
With the removal of the BI, are there any changes to the product features of SP or RSP ILPs?
As the intention of the change is to align the sales processes of the life insurance industry and the UT industry, this should not lead to a change in product features. You are advised to speak to your representative of the respective insurers to find out more.