Hi Mr. Lee,
Recently my husband bought an insurance policy. As he read through the policy’s statement, he came to this term called “policy fee”. May I what is this “policy fee” and is it apply to all insurance companies in Singapore? I have another insurance policy but from another company, i didn’t see this “policy fee” stated in the statement.
Thank you for your time to read my questions. Greatly appreciated. 🙂
Thanks & Regards.
When you buy an insurance policy, there are various costs involved. Some of these include distribution costs, policy or admin fees and mortality charges.
Distribution Costs
This is the amount paid to distributors (as commissions) or other marketing costs.
Mortality Charge
This is the amount that the insurance company needs to charge to pay for the cost of providing the insurance. This might confuse you as most people will think of the actual premiums as the cost of insurance. From an insurer’s point of view, they need to charge a certain amount (that is calculated by their actuaries) so that the pooled funds are enough to pay off future claims. This would be less than the actual premiums that you pay.
Policy or Admin Fee
A policy fee is simply an administrative fee that the insurance company charges you. The amount could range from a fixed amount like $30/year or $5/month to a percentage of the assets (for some investment-linked plans).
Depending on the plan (and the company) you are buying, the breakdown of the fees might or might not be apparent to you.
For example, a wholelife plan will usually not tell you what is the policy fee as it is already factored into the premiums.
On the other hand, NTUC family insurance plan will tell you the policy fee as it’s basically a shell policy (with an ala carte concept) that allows you to add whatever riders you want.
The fees for investment-linked plans are also quite transparent but you will need to read them very carefully as it is possible in certain scenarios that the premiums paid are not sufficient to pay for all the costs. When that happens, topups might be required.
However, MAS does require all insurers to disclose the distribution costs and put in a table showing the effects of deductions (for those plans with cash values).
The table allows you to compare how much money you will save if you invest money growing at 5.25% p.a. yourself (assuming no fees), to how much cash value an insurance policy will give you if their funds grow at 5.25% p.a.
Obviously, the second amount will be lesser as it needs to factor in the mortality charges and all the other fees.