LIFE INSURANCE ASSOCIATION, SINGAPORE

Transcription

1 LIFE INSURANCE ASSOCIATION, SINGAPORE 20 Cross Street #02-07/08. China Court. China Square Central. Singapore Tel (65) Fax (65) Web To: Ordinary and associate members Members' Circular No October 2007 LIA GUIDELINES ON PARTICIPATING LIFE POLICIES (1 MAR 08) ACTION: 1. THIS CIRCULAR REPLACES MC 73/07 DATED 29 JUN ORDINARY MEMBERS ISSUING PARTICIPATING LIFE POLICIES TO IMPLEMENT THE POINT-OF-SALE BENEFIT ILLUSTRATION AND YOUR GUIDE TO PARTICIPATING POLICIES W.E.F. 1 MARCH FOR OTHER MEMBERS' INFORMATION LIA DISCLOSURE GUIDELINES (MU 22/01 DATED 20 JUNE 2001) Insurers should continue to comply with other aspects of MU 22/01 that are not superceded by this Circular, including, general principles of disclosure, promotional materials, prescribed documents and requirement for the main benefit illustration to be signed off and filed. Your Guide to Participating Policies (YGTPP) A print-ready copy of the Guide will be issued nearer 1 Mar 08. Intended to serve as a reference document, this Guide is not a compulsory document to be given to prospective buyers at point-of-sale. Product Summary However, insurers are required to include in their Product Summary a prompt to inform consumers that the industry guide is available on the website as well as hardcopies from the life insurer on request. Life insurers are expected to make the Guide available to prospective buyers who are interested to know more. The Guide will also be posted on the LIA website. Benefit Illustration Guidelines on Benefit Illustrations for Participating Life Policies Found in the following pages of this Circular, these guidelines set out the standard format of benefit illustration for participating life insurance policies in Singapore and the basis to be adopted. It supercedes the relevant sections of guidelines in the MU 22/01 with respect to benefit illustration of participating life policies. PAULINE LIM, Secretary

2 Guidelines on Benefit Illustrations for Participating Life Policies Basis for benefit illustration of participating life policies Preparation of benefit illustrations of participating life policies requires setting relevant assumptions about the expenses, mortality and morbidity rates and policy termination rates affecting the policies. In setting these assumptions, an insurer should not use a basis that is more aggressive than the insurer s best estimate assumptions. Where applicable, best estimate assumptions should be consistent with those used in the latest actuarial investigation. The illustrations must be prepared on two assumed investment rates of return achieved by the investments of the participating fund. The two rates are used purely for illustrative purposes and do not represent upper and lower limits of the investment performance of the participating fund. The two rates shown are net of any investment expenses. The higher rate must not exceed the maximum best estimate long-term investment rate of return (currently 5.25%) set by the Life Insurance Association (LIA), Singapore. The LIA intends to review this rate on a regular basis. The lower rate must be at least 1.5% lower than the higher rate. The illustrated bonuses or cash dividends based on the higher rate must not be higher than the prevailing bonus or cash dividend scale for policies of this type. Where an insurer deviates from this requirement, the insurer is required to state clearly why this is so in the Benefit Illustration. This requirement is not applicable to the launch of a brand new product with a new bonus rate or a new series with a different bonus rate. Format of benefit illustration of participating life policies Insurers should comply with the format and wordings of benefit illustrations for participating life policies as set out in Appendix A. Illustrations of benefits should be shown for the first ten years of the policy and at every fifth year thereafter. Insurers may choose to show benefits at other durations if they believe it helps to communicate better the specific product features (e.g. limited premium payment terms; triennial cash payments), but in any event, benefits should not be illustrated beyond the later of 40 years of the term of the policy or age 65 of the Life Assured. Benefits payable upon maturity, including both guaranteed and non-guaranteed benefits, should be clearly illustrated. In addition to the main benefit illustration as shown in Appendix A, insurers are allowed to include additional illustrations for benefits that are not reflected in the main illustration. MC 101/07 - LIA Guidelines on Participating Life Policies (1 Mar 08) Page 2 of 6

3 Appendix A Sample benefit illustration format for participating policy Introduction XYZ Insurance Company believes that it is important that you fully appreciate the benefits of your policy. You should also understand how the cost of your insurance cover and the expenses of administration and sales affect the benefits that you will receive. The illustration that follows shows how the value of your policy and the sum that would be payable on your death change over time. The methods used to derive the values shown follow guidelines established by the Life Insurance Association, Singapore, to ensure that a fair and consistent approach is used in preparing this illustration. Please note that your policy provides a combination of (1) guaranteed benefits and (2) nonguaranteed benefits in the form of bonuses / cash dividends. The bonus rates / dividend scales used in this illustration are not guaranteed and may vary according to the performance of the Participating Fund. Buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the surrender value payable may be less than the total premiums paid. If you need clarification please do not hesitate to ask your adviser. MC 101/07 - LIA Guidelines on Participating Life Policies (1 Mar 08) Page 3 of 6

4 Policyholder and plan details Proposed insured: Prospect [Affix signature] Prepared by: Age next birthday: 35 Date: Sex: M Smoker/Non-smoker: NS Plan: ABC Endowment Plan Sum insured: $ Annual premium: $ Term: 20 End of Policy Premiums Paid To-date Guaranteed Benefit illustration DEATH BENEFIT [3.75%] investment return [5.25%] investment return Non-guaranteed Non-guaranteed End of Policy Premiums Paid To-date Guaranteed SURRENDER VALUE [3.75%] investment return [5.25%] investment return Non-guaranteed Non-guaranteed MATURITY VALUE What is the significance of the Projected Investment Rate of Return? The illustrations have been prepared on two assumptions regarding the investment rate of return achieved by the investments of the fund. The two rates [3.75%] and [5.25%], are used purely for illustrative purposes and do not represent upper and lower limits on the investment performance of the Participating Fund. The two rates shown are net of any investment expenses. Please refer to the investment expense ratio in the Product Summary, shown for up to the last 3 years, for an indication of the actual investment expenses incurred in managing the Participating Fund. The higher rate [5.25%] does not exceed the maximum best estimate of the long-term investment rate of return (currently 5.25%), which has been set by the Life Insurance Association, Singapore. [Where the bonus rates (or cash dividend scales) implied by the projected non-guaranteed values exceed the prevailing bonus rates (or cash dividend scales], state the implied bonus rates (or cash dividend scales) and provide clear explanation why higher bonus rates (or cash dividends) are used in the illustrations.] Please note that investment performance is not the only factor that will affect the benefits that you will receive. Other factors such as the actual level of death and disability claims on the fund and the expenses incurred will also have a bearing upon the benefits that you will receive. As the bonus rates (or cash dividends) used for the benefits illustrated above are not guaranteed, the actual benefits payable will vary according to the future experience of the Participating Fund. MC 101/07 - LIA Guidelines on Participating Life Policies (1 Mar 08) Page 4 of 6

5 What is the impact of deductions on what you might get back? The following table illustrates the effect that deductions will have on the amount you get back on surrender or maturity. It also highlights the cost of surrendering the policy early. End of Policy Premiums Paid To-date Value of Premiums Paid To-date Table of deductions DEDUCTIONS 3.75% investment return Effect of Deductions To-date Surrender Value Value of Premiums Paid To-date 5.25% investment return Effect of Deductions To-date Surrender Value What do the columns in the table of deductions mean? 1. Value of Premiums Paid To-date is obtained by accumulating the premiums paid to date at the Projected Investment Rate of Return, assuming that you were able to invest all of your premiums without deduction for the cost of insurance and without incurring any expenses. 2. The difference between the Value of Premiums Paid To-date and Surrender Value represents the Effect of Deductions To-date. This is the accumulated value of the deductions for the cost of insurance and expenses. MC 101/07 - LIA Guidelines on Participating Life Policies (1 Mar 08) Page 5 of 6

6 How much are you paying for distribution costs? This table shows the total costs of distribution that XYZ Insurer expects to incur in relation to your policy, including the cost of any financial advice provided to you. End of Policy distribution cost Premiums Paid To-date Distribution Cost To-date What does the last column represent? 1. The Distribution Cost To Date is the sum of each year s expected distribution-related costs, without interest. Such costs include cash payments in the form of commission, costs of benefits and services paid to the distribution channel. 2. Please note that the Distribution Cost is not an additional cost to you; it has already been allowed for in calculating your premium. 3. You can obtain the Distribution Cost of each of the supplementary benefits (if applicable) from your Financial Adviser or its representatives. MC 101/07 - LIA Guidelines on Participating Life Policies (1 Mar 08) Page 6 of 6