As its name implies, direct purchase insurance is a kind of product that you can buy directly from insurance companies themselves. It encompasses term and whole life insurance products with total and permanent disability coverage with the optional of adding critical illness riders. What’s a site like us writing about the pros and cons direct purchase insurance, when we love our curated pool of credible and incredible financial advisers? We here at fundMyLife strongly believe that it is crucial to empower consumers with financial knowledge.
Also, it’s easier to ask questions when you’re sufficiently equipped with knowledge. Thus, in this article, fundMyLife presents the pros and cons of direct purchase insurance.
#1 It’s cheap
The most obvious advantage of direct purchase insurance is that it is cheap. Without financial advisers in the picture, it also means there is no sales commission nor processing fees. You can use those savings and put them to other places, e.g., investments, snacks, etc.
#2 No financial advisers are involved
As mentioned, it is cheap because there’s no commissions. Instead, your premiums now go directly to the insurance company. There is less chance of you encountering rogue advisers who just want to make a quick buck off you by selling high commissions products that you will not benefit from. That said, there is nothing inherently wrong about those products – there’s a right place and time for everything.
#3 Financial advisers must step up their game
It is not a direct benefit to you as a consumer. However, now that consumers can purchase their own life insurance, stakes are higher for existing and aspiring advisers. In theory, advisers now have to make sure that they do not fall behind the inevitable automation that occurs. Furthermore, these advisers will have to improve their financial planning game better in order to compete with direct purchase insurance websites like CompareFIRST and DIYInsurance.
Fortunately, we reiterate that we have those awesome experts in our list of highly curated advisers – hint, hint, hint.
#1 No financial advisers are involved
You might think us glib for repeating the same point as the previous section, but not having an adviser also puts you at a disadvantage. Firstly, you have to do a lot of research for yourself, which may or may not work out well. Advisers undergo rigorous examination and studying, which means from a knowledge perspective they might know a bit more about financial planning, and may spot things that you do not.
In addition, when you DIY your own insurance, you will also be DIY-ing your own claims if disaster strikes. It will be trying to wade through paperwork by yourself if you find yourself in trouble, and there is no one to service you. You have to contact the insurer directly, which is like a box of chocolates – you will never know what (service) you will get. At best, almost instant processing. At worst, it’s a nightmare.
#2 Sum assured
You can insure yourself for up to SG$400,000 per insurer, with a sub-limit of SG$200,000 for whole life direct purchase insurance. For example, if you bought yourself a term life DPI for SG$200,000, you can only buy an additional SG$200,000 coverage from either term life or whole life from the same insurance company. If you need more, you can only buy it more coverage from another insurer with declaration.
SG$400,000 of coverage is okay-ish for an individual, as this number arises from research in 2012 by the Life Insurance Association of Singapore. However, once you need to support a family, you will have to buy multiple products from different companies just to skirt that limit. Therein lies the limitation – you simply cannot go beyond $400,000 per company and it doesn’t make sense to buy the same kind of product from multiple companies.
#3 Limited range of products
While you can obtain a critical illness rider for your direct purchase insurance, you are unable to obtain early critical illness riders. The same argument applies in this case with respect to getting early CI vs regular CI. With technology improving over time, it’s easier to detect critical illnesses like cancer early. However, if there is no early CI protection in place, you will not benefit from early diagnosis (morbid as it sounds).
Furthermore, there are 30 critical illnesses in the rider, compared to the standard 37 critical illnesses found in critical illness plans. These 30 illnesses are the most commonly offered by insurers and account for about 98.5% of claims in Singapore, according to MoneySense FAQ. It makes sense, since several of the 7 diseases that were left out are exceeding rare, like poliomyelitis and apallic syndrome – we wrote about them here.
That’s all folks! We hope that this article clarified the advantages and disadvantages of purchasing your life insurance by yourself. If you’re considering direct purchase insurance due to distrust of financial advisers, why not consider the advisers of fundMyLife? The fML team spends considerable amount of time to curate a quality adviser pool, so that you receive quality advice when you ask on our platform.
If you have any more questions on life insurance, why not ask our curated pool of trusted financial advisers?
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