Ten years on, buying insurance direct with no agent is popular and cheaper. What are the risks?

With nearly three years of working experience and a stable job, my friend felt financially ready to look into buying a life insurance policy. And like any other digitally savvy person considering a big purchase, she turned to the internet for advice.

However, instead of considering which policy to buy, my 26-year-old friend found herself faced with a different dilemma.

First, she had to figure out if she should buy the policy through an insurance agent or directly from an insurer.

Buying directly from an insurer could mean savings on a cheaper premium and the convenience of making the purchase from the comfort of home. No need to meet an insurance agent for coffee – an enticing prospect for introverts like my friend.

But she discovered that there are some downsides: Such insurance policies have limited coverage and my friend would miss out on the advice of an insurance agent to better understand what she needed.

When my friend told me of her dilemma, I realised that I had not given this issue much thought. Instead, I had simply asked a family member to "decide for me and just tell me what to pay". I completed the purchasing process for the insurance through an agent.

It got me thinking: Do the cost savings make buying directly from an insurer worthwhile? I talked to some financial and insurance industry figures to get some answers.

PROS AND CONS

Since 2015, insurers here have sold "direct purchase insurance" (DPI) policies. This allows people to buy whole life and term insurance directly from insurers. Such policies also come with total and permanent disability coverage, as well as optional coverage for critical illness.

With such lower cost and convenience, insurance provider Etiqa told CNA TODAY that the firm has seen more young clients take up DPIs – though it did not provide exact figures on the increase.

In 2022, The Business Times reported that DPIs accounted for about 40 per cent of insurance policies sold in Singapore.

Agents tied to insurers, other agents and banking representatives accounted for most of the rest of policy sales.

Dr Sunny Leong, head of the minor in insurance fundamentals programme at the Singapore University of Social Sciences, said that one draw of buying a DPI is that people have complete control over the purchasing process.

"They can take their time to compare different products and choose what aligns best with their needs," she said. "Consumers may also feel less pressure to make a quick decision without the influence of an adviser's sales tactics or promotions."

Besides that, DPIs are also cheaper because there is no insurance agent commission that is calculated as part of the premiums paid.

Mr Edwin Ooi, a senior financial advisory specialist from MoneySmart Financial, said that this could amount to roughly 20 per cent in savings – though this depends on the buyer's age, the policy terms and the insurance company involved. This figure is based on quotations that his firm has generated from several insurers.

Over at insurance firm Prudential, its chief customer officer Goh Theng Kiat told me that the firm's customers prefer buying life policies through an insurance agent despite the rise in online channels for direct purchase.

Prudential, like most life insurance companies, offers DPIs.

"They (use an agent) after building trust and confidence with their agent, who help them understand the different types of insurance plans available, ensuring peace of mind for them and their loved ones," Mr Goh said.

Mr Timothy Ho, co-founder and managing editor of investing website Dollars and Sense, said that one reason for people preferring to buy through an insurance agent is that life insurance has complex terms that may not be clear to average consumers.

"An agent can help tailor these policies to individual needs, ensuring that buyers fully understand what they're getting, any potential exclusions, and how the coverage fits into their overall financial plan," he added.

Another downside to DPIs is that they have limited coverage.

The maximum coverage of a whole-life DPI – which covers you for life – is S$200,000 (US$149,000). A term-life DPI – which covers you for a specific period of time – has a maximum coverage of S$400,000. 

Experts and insurance companies said that this regulatory limit is because of the lack of financial advice provided, for instance.

There are no limits for life insurance policies bought through insurance agents – though insurance companies will consider someone's age and salary, among other things, when setting the coverage.

Mr Ooi said that consumers could buy multiple DPIs to increase their coverage, but he advised that it might be cheaper to buy a single policy through an insurance agent.

Buying multiple DPIs would also mean doing so from multiple insurers, which would complicate the claim process, he added.

Mr Ooi suggested that DPIs may work as "supplementary insurance" to increase your coverage without needing to adjust your existing insurance policies.

READING THE FINE PRINT

If someone ultimately decides to buy a DPI, what should they do?

Mr Ho said that as with any insurance policy, it is important to review the terms and conditions carefully. He said that some things to look out for include exclusions and understanding what the policy covers.

Ms Dawn Cher, writer at personal finance website SG Budget Babe, said: "The problem with insurance policies is that they are very complicated, because different policies and insurers cover different things. That's why you need to look carefully at the terms and conditions and decide what you need."

She added that people also need to look carefully at the premium cost and how it will increase over time so as to properly budget for it. 

Beyond that, people have to understand the policies they buy and what they cover well. This is so that they do not buy too many policies or do not buy enough to cover certain needs such as critical illness, Ms Cher said.

To ensure that clients have no issue claiming from their DPI if needed, Mr Ooi said that people need to declare their health status accurately. 

Should an insurance company discover that a person has an underlying condition, the company may choose to void the insurance policy. This means that the client might not have any life insurance coverage.

What about turning to artificial intelligence (AI) to get some financial advice?

Several insurers said that they have adopted AI as part of their customer service.

Prudential, for one, has an AI-powered bot that can make calls to customers to remind them about their insurance premium payments. Etiqa, too, has an AI chatbot, which can answer customer's queries "to navigate various policy servicing functions".

Experts said that although AI may help simplify things, it has not reached a stage where it could help people provide financial advice since this requires understanding a person's background.

"While AI can enhance the purchasing experience, challenges remain, such as ensuring data privacy, maintaining human oversight to adhere to legal requirements," Dr Leong said.

In response to CNA TODAY's queries, the Life Insurance Association, Singapore (LIA Singapore) said that consumers may use the CompareFirst platform to easily compare DPI products and non-DPI products.

With various pros and cons, there is no hard and fast rule on whether people should buy from an insurance agent or a DPI because it depends on each person's circumstances.

My friend, for one, ultimately decided on a DPI because the monetary savings mattered more to her.

"I'll set a reminder to re-evaluate my policies in three years. Hopefully, I get promoted on the job and can afford a better plan," she told me.

LIA Singapore said: "We strongly encourage consumers to do their due diligence before purchasing insurance, whether through an (insurance agent) or directly through an insurer for a DPI product.

"Ultimately, regardless of how consumers purchase their insurance, what matters most is they are proactive in protecting their financial and physical well-being, as well as that of their loved ones."

Editor's note: An earlier version of this article stated that whole-life DPI has a maximum coverage of S$400,000 and term-life DPI has a maximum coverage of S$200,000. This is incorrect. Whole-life DPI and term-life DPI have a maximum coverage of S$200,000 and S$400,000 respectively. We apologise for the error.