Singaporeans Grossly Under-insured (STI, 21 Aug 2009)

The aver­age Singa­por­ean now needs about $495,000 of life insur­ance, but is covered for only one-third of that amount — a drastic short­fall that needs urgent atten­tion, repor­ted Char­risa Yong (STI, 21Aug09). Are you one of them…

Accord­ing to a new report by Nan­yang Tech­no­lo­gic­al Uni­ver­sity (NTU) Asso­ci­ate Pro­fess­or Dav­id Yee, work­ers here aged from 20 to 64 are under-insured by as much as $525 bil­lion nation­wide.

An aver­age Singa­por­ean needs life insur­ance pro­tec­tion of $494,851. How­ever, his exist­ing life cov­er is only $165,628 on aver­age, even after includ­ing mort­gage insur­ance and CPF sav­ings. This leaves a stun­ning short­fall of $329,223.

Prof Yee presen­ted the report at a sem­in­ar on insur­ance held at the Inter­con­tin­ent­al Hotel yes­ter­day.

A work­ing adult’s pro­tec­tion needs should provide enough cash to main­tain depend­ants’ cur­rent liv­ing stand­ards.

It should also cov­er any out­stand­ing debts and funer­al expenses. This excludes the con­tri­bu­tion of a sur­viv­ing spouse. In addi­tion, it needs to cov­er hous­ing costs, allow­ances giv­en to par­ents and chil­dren’s expenses, includ­ing edu­ca­tion fees.

Work­ing men aged 30 to 49 have the highest pro­tec­tion needs as they have the highest income and are likely to have high­er per­son­al loans.

Also, more depend­ants typ­ic­ally rely on them fin­an­cially.

The male-female income gap is the main driver behind dif­fer­ences in the insur­ance needs of each gender, he said.

As couples get older, the hus­band tends to be the more dom­in­ant bread­win­ner, and so the fin­an­cial bur­den of pro­tec­tion shifts away from the wife.

Those aged 30 to 39 were found to have the highest level of insur­ance own­er­ship, but also the most pro­tec­tion needs.

This gen­er­al under-insur­ance prob­lem comes on the heels of anoth­er recent study, which found that Singa­por­eans con­sider them­selves fin­an­cially risk- averse.

It was con­duc­ted early this year by Swiss Re, a mem­ber of the Life Insur­ance Asso­ci­ation.

Nearly three-quar­ters, or 73 per cent, of Singa­por­eans were aware of the need to insure them­selves, but only 48 per cent were aware of how to go about it.

This high­lighted a need for con­sumer edu­ca­tion, said Mr Low Kwok Mun, exec­ut­ive dir­ect­or of the insur­ance super­vi­sion depart­ment at the Mon­et­ary Author­ity of Singa­pore.

He said that the incent­ive struc­tures for insur­ance advisers cur­rently tend to encour­age advisers to push products that gen­er­ate the most com­mis­sions, rather than the products that meet the needs of the con­sumers.

This does not align well with the nature of life insur­ance, which is to provide long-term pro­tec­tion to poli­cy­hold­ers.

Mr Low urged the industry to ensure that incent­ive struc­tures do not influ­ence insur­ance agents to give advice based on any reas­on oth­er than to meet the needs of indi­vidu­al con­sumers.

First Prin­cip­al Fin­an­cial’s chief exec­ut­ive Mohamed Salim said one factor which con­trib­uted to the prob­lem was the high turnover rate of fin­an­cial advisers.

Why would com­pan­ies want to prop­erly train their fin­an­cial advisers if the turnover rate is so high? They end up per­form­ing the role of sales instead of fin­an­cial advis­ory work,’ he said.

Industry reg­u­lat­ors should con­sider look­ing at encour­aging the need to devel­op good agency man­age­ment prac­tice as a requis­ite,’ he added.

The NTU report estim­ated the pro­tec­tion needs of a work­ing adult in vari­ous typ­ic­al house­holds in each broad age group. It cov­ers only the scen­ario in which both hus­band and wife work.

The report is an updated ver­sion of a 2006 study, using research car­ried out in 2007. It sur­veys the most com­mon house­hold size for an age group.

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