According to the MAS, some policyholders might be unaware of additional charges or savings which arise when purchasing an ILP.
Published on Friday, the paper entitled ‘Proposed Enhancements to Disclosure Requirements for Sale of Investment-Linked Policies’ outlined a format for improving clarity around ILP charges.
Product highlights sheet
The MAS suggested establishing a new ‘product highlights sheet’ which would be provided by insurance companies. The document would summarise the main features and risks of the investment-linked policy, and would provide information on valuations and how to withdraw from the policy.
It would make the various layers of cost clear to the consumer, including:
- entry and surrender charges
- insurance and administration fees
- fees from underlying investments
- additional fees charged by the insurer
The proposed format would emphasise that an ILP, which is essentially a combination of a life insurance policy and a collective investment scheme (CIS), is only suitable for investors seeking both protection and investment.
Simplify upfront deductions
The second section of the paper proposed the introduction of a single entry charge to simplify the upfront deductions of ILPs and therefore minimise confusion for policyholders.
This entry charge would be calculated as a percentage of the premium amount and would be deducted from the premiums before the subscription of invested units.
Another feature the MAS proposed was for single premium ILP customers to receive monthly statements, as opposed to the current yearly ones.
This means investors would be given regular updates about the number and value of units held in the underlying CIS, and details of transactions over the past month.
Transitional period
Insurance companies will be given a six month transitional period after the legislation has been passed to implement the proposals in the paper.
New legislation, which comes in the wake of the Financial Advisory Industry Review (FAIR), is set to emerge at the end of this year.
