Why consumers should not consider Direct Purchase Insurance (DPI)?

Since DPI is a no commission insurance product therefore I should I should jump in and buy? Hold your horses, before you do that, look at the differences before you think it is the best. No distribution does not necessary means it is the best product in the market.

iFAST Insurance Team Nov 17, 2016 10919

Direct Purchase Insurance (DPI), is it really enough to help cover your financial protection needs? Is it really a "benefit" of not being required to seek advice? Let's say we need some insurance coverage due to higher liabilities, simply head to any insurer's website and purchase a DPI. Simple, straightforward protection which you can purchase quite conveniently.

The idea is great, but there are limitations that may not be obvious to many. In this article, we will take a look at 3 limitations on DPI which might impact your ability to cover your protection needs appropriately..

1) Limitation on coverage

DPI allows a maximum coverage of $400,000. If you would like greater coverage through DPI, you would need to purchase multiple policies to make up the shortfall.

According to a protection gap study, the typical insurance coverage required is about 10 times your annual income1. By using a median income of $3,9492, the average protection coverage per person is at least $473,000.

Loans and liabilities should also be taken into account when planning for your protection needs. The larger your liabilities, the greater the amount of coverage that you will need. As a result of adding up all your loans and liabilities, your insurance coverage will easily exceed the maximum DPI coverage.

Example of a Male, Non-smoker:

  • Policy coverage till 65 years old
  • Death and Total Permanent Disability (TPD) Coverage.

*#Annual premiums in SGD $

*Annual Premium for $1 Million
*Annual Premium for $400,000

*Premiums reflected on the table are tabulated on 11th November 2016.

#This is a simple illustration that does not take into account client risk profiles, financial objectives and other types of commitment.

Age matters a lot on the amount of premiums that you will have to pay. The younger and the healthier you are, the cheaper the premiums will be. Based on the premium comparison, a normal term insurance may be more cost effective depending on the coverage size. (see "Would You Ever Try Bungee Jumping... Without a Rope?").

2) Total Permanent Disability (TPD)

Non-DPI products such as term plans with their respective riders, can be more flexible as compared to their DPI counterparts. To illustrate the difference:

For DPI, the definition of TPD is the total and irrecoverable loss of use of any 2 of 6 limbs namely, the eye, legs above ankles and hands above wrists.

For Non-DPI, the definition of TPD is the total and irrecoverable loss of use of any 2 of 6 limbs namely, the eyes, legs above ankles and hands above wrists; Or the inability to perform any 2 or 3 activities of daily living, which includes washing, dressing, feeding, toileting, mobility and transferring.

As you can see from the difference, a non-DPI product can be much more flexible when it comes to claim on TPD.

3) Critical Illness (CI)

There are differences in the number of critical illness definitions between DPI and Non-DPI products. DPI products cover 30 CIs, while non-DPI products have the flexibility to cover more than 30 CIs3.

Cancer and Pneumonia are the top 2 causes of death in Singapore4. In a recent AIA's Health Matters Survey conducted this year, it is discovered that more people can only survive (financially) one critical illness incidence.

Non-DPI products can cover a wider range of CI for clients (see "Worried About Critical Illness? Here's 3 Plans You Should Know").

With the comparison above, don’t you think it would be penny wise, pound foolish?

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Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment
From Manulife, NTUC Income and Tokio Marine Life Insurance
*Please check with our advisory team if the products you want are available on Insurance@FSM

At Insurance@FSM, we are here to walk with you through your life’s journey. If you would like assistance in reviewing your financial and protection needs, please feel free to contact our team of friendly investment advisers at advisory@fundsupermart.com.

Protect yourself and your loved ones now and enjoy savings at Insurance@FSM!

1Source: http://www.lia.org.sg/files/document_holder/FAIR/LIA_Protection_Gap_Study_2012_Report_28Aug12.pdf

2Source: http://stats.mom.gov.sg/Pages/Income-Summary-Table.aspx

3Source: http://www.lia.org.sg/files/document_holder/Industry_Guidelines_-_Health/LIA_CI_Framework_2014_LIA_Definitions_for_37CIs.pdf

4Source: https://www.moh.gov.sg/content/moh_web/home/statistics/Health_Facts_Singapore/Principal_Causes_of_Death.html

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