In the course of the past few weeks, I have received inquiries on new and pending changes to the insurance industry and so I would like to share this news and how it’ll affect you as a policyholder.
1. Updated Critical Illness (CI) definitions come Aug 2020
This is done to “address ambiguities that have arisen due to medical advancements and health trends in the past five years,” said Mr. Khor Hock Seng, president of LIA Singapore and allow standardization of CI definitions across all insurers.
Existing individual life policies are unaffected but group insurances are expected to be I believe.
If you wish to benefit under the current set of definitions, do get in touch with me asap.
2. Expanded list of CI
If you are holding on to a policy purchased at least 2-3yrs ago, it’ll probably cover just 30 CI. Now, it’s pretty common for insurers to provide 35 CI and there are a few offering up to 55 CI.
More comprehensive coverage is of course better for you.
3. Early and Intermediate stage CI
This was introduced sometime back in 2015 and the product terms and premium have now reached a certain level of stability and maturity.
Given that people are now more concerned over their state of health and will attend more regular health screenings, it, therefore, allows early detection of health issues and necessary treatment.
Allowing an early claim on health conditions will provide you greater peace of mind over healthcare bills and the option to say, take sabbaticals or take a step down from work to focus on the recovery of your health or spend more time with your loved ones.
Using Cancer as an example, you will note that Carsinoma-in-situ is excluded under the Advanced stage cancer definition whereas you will note that it is a covered or claimable event under Early stage cancer.
This then leads to the question on whether you prefer an early claim or when the illness has deteriorated till a possibly irreversible point? I believe the answer is obvious.
As Early CI coverage significantly increases the probability of a claim, the premium will be higher compare to an Advanced stage only CI cover, but well worth it’s value if you can budget for it.
4. RBC2 (Risk Based Capital 2)
In a nutshell, this will be a new capital framework by MAS for insurers to enhance risk assessment so that capital requirements are more aligned to it’s business and risk profiles.
While the new regulatory requirements will serve to improve the solvency of the insurer and ensure that the guarantees in their policy contracts will be better backed by appropriate assets e.g long term government bonds, the prevailing low bonds yields will mean a higher than desired proportion of the par fund will have to be allocated to bonds.
Resulting from above, a lower allocation to equities in the par fund may impact the insurer’s ability to meet investment returns originally projected. Worst case, you can expect to experience cuts in reversionary bonus and/or terminal bonuses on existing issued policies.
For upcoming policies, you can expect a lowering of the investment projection to max 4.5%p.a (was at 5.25%p.a when I first joined the career back in 2003), lower guarantees and restructuring of bonuses away from reversionary bonus towards terminal bonus. This, in turn, creates greater uncertainty for the policyholder to evaluate the non-guaranteed projections by the insurer.
Will this mean that endowments will no longer be attractive?
– This is a new normal and your bank deposits are not immune.
– In my opinion, it will still remain a relatively attractive form of long term accumulation for your children’s education funds and retirement.
– However, lower yields will mean that we need to
- allocate more resources towards wealth accumulation
- need to plan earlier so that our accumulation runway will be long enough
- it’s almost a must to take the risk and invest your money for better long term returns
If you wish to secure the accumulation savings plans under the current guarantees and bonus structure, do get in touch with me asap.
Lastly, don’t let short term disruptions like Covid-19 put a pause on achieving your long term financial goals. With courage and determination, your continued action today will serve you well in future.