I love that technology is gradually giving us the ability to choose what we want, when we want it and not have to rely on sales and marketing people to tell us what we want. For example, in Singapore, Coca-Cola has a new machine called Freestyle at GV Plaza, which dispenses customised Coke and Sprite flavours.
That means I can pretend to be a hipster and drink all the Cherry Vanilla Coca-Cola I want and no amount of judging stares is going to stop me. Sadly, insurance doesn’t work the same way as Coke. I can’t just go online and buy the life insurance that I want.
What do you mean you can’t go online and buy the insurance you want? Isn’t direct purchase insurance now a reality?
Okay, we’re getting ahead of ourselves. Let’s start from the very beginning and explain what direct purchase insurance is. Direct purchase insurance is a new class of products that was launched almost a year ago. Essentially, you should now be able to buy very basic life insurance policies without worrying about financial advice and paying for agent commissions. However, direct purchase insurance coverage is capped at $400,000 per insurer per person insured. We’ll talk more about this cap later.
At the same time, a new web portal called compareFIRST was launched. This portal allows you to compare the premiums of various life insurance policies, including the newly introduced direct purchase insurance. By comparing how various insurers price their policies, you’re supposed to be able to find the most cost-effective option.
Okay, so what’s the problem here? Why doesn’t direct purchase insurance work the same way as Coca-Cola Freestyle machine?
The main problem is that direct purchase insurance (DPI) and compareFIRST are still not living up to their ideal. DPI premiums are supposed to be lower because you eliminate the need for a middleman, and hence there are no commissions. However, despite the name, DPI isn’t really direct. As people have discovered, not every insurer provides you with the ability to buy your policy directly from a website. Instead, you have to approach their customer service centres to make your payment.
So here are three things you need to know about buying Direct Purchase Insurance.
1. You may not be able to buy it online
Some insurers like NTUC Income and Etiqa have put in place the long and tedious process of obtaining a complete declaration online, complete with the ability to make payment, all without needing to interact with a financial advisor.
However, for a majority of insurers, the lack of an actual online application process is questionable. It’s been almost a year since DPI was introduced. Surely the insurer has had enough time to invest in a secure system to process a purely online application?
Some insurers end up getting you to submit your details online first, and then make a call to their customer hotline. Others just tell you outright that you need to go in person to their customer service counters.
But wait… getting to speak to someone before you buy a policy is not a bad thing, right?
No, of course it isn’t! When it comes to something as complicated and personalised as insurance, it’s probably a good thing to have someone to answer any concerns you may have. However, the exact purpose of introducing the DPI to the Singapore market is to eliminate the need for a financial advisor. Which brings us to our second point…
2. You may end up buying something other than Direct Purchase Insurance
When you make a call to a customer hotline, or go in person to a customer service centre to buy your DPI, there’s a high chance you’ll be recommended alternative insurance policies and products. Products that, granted, have higher coverage, but are likely to come with higher premiums as well.
There’s a high chance the person you speak to will tell you that DPI is not the best product for your needs. Usually, they will be right, especially if you already have existing policies or higher coverage needs. There’s also the fact that for DPI products, you will need to process your own claims, since you eliminated the middleman.
However, there’s also a small possibility that they’re just looking to sell you a new product exclusive to them, usually an investment-linked policy. So before you make that call or approach them in person, you’ll need to be aware of, so that you don’t end up signing up for something entirely different:
- The difference between the various life insurance types such as Term Life and Whole Life
- Riders that they may ask you to sign up for, including early critical illness, hospitalisation, and personal accident coverage
- Alternatives that include hybrid products such as investment-linked policies, or products that are not even insurance
3. Direct purchase insurance might not be sufficient for your coverage needs
As we mentioned earlier, there is a cap of $400,000 coverage for DPI products. This is based on research done by the Life Insurance Association of Singapore in 2012 that determined the average coverage needs of Singaporeans.
While it’s more than enough for most Singaporeans, it will definitely not be sufficient if you have multiple dependents, like a spouse and children. In such cases, one option you have is to buy DPI from multiple insurers, but that would require you to declare that you’re making concurrent applications. It’s then up to the insurers if they want to provide you with the coverage you ask for.
Ultimately, you need to know what you’re doing…
The introduction of DPI is a great step forward in providing more insurance options, but you have to be sufficiently prepared if you’re going to buy insurance without getting help and advice from an objective financial advisor – i.e. one who puts your interests first before their own.
Ultimately, DPI isn’t the Coca-Cola Freestyle of insurance. It’s not customisable, and is really for the most basic of coverage – for death and total permanent disability, with the option to include critical illnesses. If you’re looking for specific options, you’re still going to have to go back to your financial advisor.
Have you ever bought insurance without an agent? What was your experience like? We want to hear from you.