Direct purchase insurance: What to know before buying direct insurance

Buying life insurance no longer has to involve meeting up with an insurance agent at Starbucks. Direct purchase insurance (DPI) is a type of life insurance that you can buy directly from the insurer without having to go through a financial advisor or agent.

DPI is meant to be basic, simple and straightforward — so you can understand the product by yourself. Here are some basics to know if you’re buying direct insurance without the help of a financial advisor.

What is direct purchase insurance?

The term direct purchase insurance or DPI refers to term life insurance and whole life insurance policies that you can buy directly from an insurer without first obtaining financial advice from an agent, or having the agent make the application on your behalf.

Direct purchase insurance is relatively new, having been launched only in 2015. It differs from regular term life and whole life insurance in a few ways.

1. First of all, as no commissions are paid to agents, premiums for direct purchase insurance tend to be lower.
2. Broadly speaking, direct purchase insurance also tends to be simpler and more straightforward.
3. They’re also less customisable than your typical life insurance policy, so you probably won’t be able to adjust most of the parameters.
4. Direct purchase term insurance coverage is capped at $400,000 per insurer per person insured.
5. Direct purchase whole life insurance coverage is capped at $200,000 per insurer per person insured.

If you’d like to know more about the direct purchase insurance policies available in Singapore or compare plans, your first port of call should be the compareFIRST platform, which was launched by the Monetary Authority of Singapore (MAS), the Consumers Association of Singapore (CASE), the Life Insurance Association Singapore (LIA) and MoneySENSE.

How much does direct purchase insurance cost?

Here are some sample direct purchase insurance quotes from compareFIRST to give you an idea of what’s available and how much they cost.

*Sample premiums are for 35-year-old female non-smoker till age 70

ALSO READ: Should you get a term life insurance plan? We explain how it works

Should you buy term life or whole life insurance?

Both forms of life insurance are meant to protect you if you die or become totally or permanently disabled. They typically pay out a lump sum to your family (if you die) or you (if you become disabled).

Term life insurance typically allows you to get covered until an age of your choice so you don’t need to pay for protection when your dependents are financially independent.

On the other hand, whole life insurance offers life insurance coverage for your entire life (or at least until you reach a very ripe old age). This usually means coverage for death and total and permanent disability.

But there is another key difference — whole life insurance can also help you accumulate cash value over time. So one of the objectives of whole life insurance can be to grow your savings or even reap investment returns.

Consider these before making your choice:

• Your budget: As you can see from the premiums quoted above, direct purchase term life insurance is much cheaper for the same death payout. This gives those on a budget the chance to get the bare minimum coverage if that’s all they wish to pay for at the moment.
• Riders: Both direct insurance options start out pretty bare-bones, but you can purchase optional riders to cover you for events such as disability or critical illness. Riders differ from policy to policy.
• Complexity: Whole life insurance can be a bit more complex than term life insurance because of the accumulation of cash value. So you will need to pay attention not only to what you are being protected for (eg. death, total and permanent disability) but also the wealth accumulation and payout terms.

If you do not require your life insurance policy to have any investment or cash value, then we’d recommend starting with a term life insurance policy as it’s cheaper and simpler. Though make sure you do invest the remainder.

How to choose direct purchase term life insurance

Here are the some features of direct purchase term life insurance to look out for:

• Death benefit – All plans will have this
• Total and permanent disability benefit – Most plans offer this but you might have to add it on as an optional rider
• Critical illness benefit – Some will offer a payout if you get diagnosed with a critical illness, but you usually have to buy an optional rider to get this benefit
• Option to renew – As term life insurance does not last your whole life, you might wish to know if you can renew it when the term is up. Look for a renewable policy if that’s the case.
• Level sum assured or reducing sum assured – Reducing sum assured term life insurance policies are usually mortgage insurance policies that protect you for the remaining sum on your mortgage. The sum gets reduced over time as you pay off your mortgage and reaches zero when the loan is fully repaid. For those who just want term life insurance, you’ll be opting for a level sum assured.

Here’s a snapshot of sample direct insurance plans and premiums for 35-year-old female non-smoker with $400,000 coverage till age 70:

• AXA Term Protector – Offers coverage for death. Rders available for total and permanent disability, personal accident and early critical illness. Premium: $577 per year
• Great Eastern Life GREAT Term with TPD Benefit – Offers coverage for death. Riders available for total and permanent disability, disability income, waiver of premiums, critical illness and personal accident. Premium: $540 per year
• Aviva MyProtector Term Plan II – Offers coverage for death. Riders available for total and permanent disability and waiver of premiums. Premium: $746 per year

ALSO READ: Term life insurance – why you should start here when figuring out what coverage you need

How to choose direct purchase whole life insurance

Here are the some possible features of direct purchase whole life insurance:

• Death benefit – All will have this
• Total and permanent disability benefit – Most offer this
• Critical illness benefit – Some will offer a payout if you get diagnosed with a critical illness. You might have to add this on as a rider.
• Returns – Whole life insurance plans can either pay out only guaranteed returns, or also have a non-guaranteed returns element. Those that pay out non-guaranteed returns offer the potential to grow your accumulated cash, although any returns are not promised.
• Sum assured multiplier – Some plans can increase your amount of insurance coverage for a specific period of time.
• Cash coupons – Some plans can pay out a portion of your cash value in cash coupons on a regular basis, rather than giving you everything in a lump sum.

Here are some sample whole life insurance plans for 35-year-old female non-smoker with $200,000 coverage till age 70:

• Etiqa Whole Life – Offers guaranteed and non-guaranteed benefits. Optional critical illness rider. Premium: $3,178 per year
• Manulife ManuAssure Life 70 – Offers guaranteed and non-guaranteed benefits. Optional critical illness rider. Premium: $2,927 per year
• Prudential PRUprotect life @ 70 – Offers guaranteed and non-guaranteed benefits. Optional critical illness rider Premium: $3,540 per year

What’s the direct purchase process like?

When you’ve compared products on compareFIRST and have decided which one you need, you can go ahead and look up the insurance product directly from the insurer.

When ready to buy, Google the name of the policy you want to buy to find the insurer’s product page dedicated to that policy. The product page should contain instructions on how to buy a policy.

But note that the process differs from insurer to insurer.

Some insurers, like FWD and Singlife, let you buy the plans directly on their website. This isn’t quite as simple as clicking “Check Out” on Shopee — you also have to complete a declaration before making payment online.

Some insurers do not have a robust online purchase system, and so require you to call their hotline or visit their customer service centre in person to buy a direct purchase policy.

At that point, the insurer might take the opportunity to recommend alternatives to the DPI policy of your choice. Make sure you understand what you’re buying so you don’t accidentally get persuaded to sign up for something else entirely.

ALSO READ: 5 things you may not know about personal insurance in 2020

No agent sounds great. But is there a catch?

You might be relieved you don’t have to waste an evening meeting up with an agent. But that’s also one of the downsides of direct purchase insurance — you don’t have an agent to explain things and help you pick a policy that fulfils your needs.

You’ll also have to spend time comparing insurance products from different companies using compareFIRST and by browsing the product pages on the insurers’ websites. So get ready to download lots of insurance product brochures.

As you don’t have an agent, you’ll also have to be prepared to DIY your claims. It would be best to find out how to to do this when you buy the plan, rather than wait till you need to make a claim.

Is the $400,000 coverage limit enough?

To recap, there are limits to how much insurance coverage you can buy when buying directly:

• Direct term life insurance: $400,000 per insurer per person
• Direct whole life insurance: $200,000 per insurer per person

Why $400,000? This number is based on research done by the Life Insurance Association of Singapore in 2012 that determined the average coverage needs of Singaporeans. However, that was 8 whole years ago, and it has not been updated to account for inflation.

$400,000 might be sufficient for a frugal, single Singaporean, but it might not be sufficient if you have multiple dependents, like a spouse and children.

Before committing, you should figure out how much insurance coverage you need. (Remember, you won’t have an agent to do the math for you!)

This article was first published in MoneySmart.