Due to a change to the regulatory requirements issued by the MAS, from 1 Feb 2014 onwards, it is no longer permissible for the insurance service providers to provide any benefit illustrations. This is to avoid misinterpretation of investment projections. All references to ‘Benefit Illustration’ (BI) in the product literature must now also be removed. The BI has been replaced by the requirement to disclose Total Distribution Cost (TDC). TDC includes cash payments in the form of commission, cost of benefits and services paid to the distribution channel.
Uniform TDC Definition Expressed In Percentage
To reflect the changes, the following disclosure will be used for all insurers.
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.
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 industry, for which projections are not allowed.
Below are the FAQs from LTA
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.