Life insurance products, including whole life, endowment, annuity and investment linked products, are useful to consumers if they are properly designed. They encourage consumers to make voluntary long term savings and manage the risk of premature death, disability or other calamities of life and improve the financial security of the insured families.
These products should be designed to be fair and give good value to consumers, by adopting the following approaches:
a) use the asset share method to distribute the fluctuating investment gains
b) keep distribution cost low
c) make the products transparent and easy to understand
There is also a need for the Government to review the tax incentive to encourage long term savings.
The asset share method is already adopted for the investment-linked products. They can be the platform for the future products.
It is possible to keep distribution cost low by educating the public on the purpose and value of life insurance products and the tax incentives that comes with them. When consumers want to buy insurance products, the sales people can be more productive in selling these products. The commission can be reduced or replaced by a fixed transaction fee.
It is useful for some tax incentive or subsidy to be provided for insurance products. If the interest earned in the life insurance fund pays a lower rate of tax (like in France) or is tax deferred (like in USA), the inherent advantage will make the life insurance products attractive to consumers. Alternatively, the premiums paid on insurance products can be allowed a modest rate of tax relief or subsidy (for people who do not pay tax).
To avoid any abuse of the tax incentive, a system of regulatory control has to be implemented, including meeting of performance indicators on cost, efficiency and benefit to consumers. This cannot be left to "the market". Predatory products that are unfair to consumers or designed to abuse the tax incentive should not be approved.
Singapore can learn from the positive experience of many countries in using tax incentives to develop a vibrant and efficient life insurance industry to encourage prudence, long term savings and financial security to the insured families.
I hope that the Government will consider my suggestion to provide tax incentive to encourage people to make voluntary savings for the financial security of their families.
Tan Kin Lian
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