Insurance Policy Fee

Hi Mr. Lee,

Recently my husband bought an insurance policy. As he read through the policy’s statement, he came to this term called “policy fee”. May I what is this “policy fee” and is it apply to all insurance companies in Singapore? I have another insurance policy but from another company, i didn’t see this “policy fee” stated in the statement.

Thank you for your time to read my questions. Greatly appreciated. 🙂

Thanks & Regards.

When you buy an insurance policy, there are various costs involved. Some of these include distribution costs, policy or admin fees and mortality charges.

Distribution Costs

This is the amount paid to distributors (as commissions) or other marketing costs.

Mortality Charge

This is the amount that the insurance company needs to charge to pay for the cost of providing the insurance. This might confuse you as most people will think of the actual premiums as the cost of insurance. From an insurer’s point of view, they need to charge a certain amount (that is calculated by their actuaries) so that the pooled funds are enough to pay off future claims. This would be less than the actual premiums that you pay.

Policy or Admin Fee

A policy fee is simply an administrative fee that the insurance company charges you. The amount could range from a fixed amount like $30/year or $5/month to a percentage of the assets (for some investment-linked plans).

Depending on the plan (and the company) you are buying, the breakdown of the fees might or might not be apparent to you.

For example, a wholelife plan will usually not tell you what is the policy fee as it is already factored into the premiums.

On the other hand, NTUC family insurance plan will tell you the policy fee as it’s basically a shell policy (with an ala carte concept) that allows you to add whatever riders you want.

The fees for investment-linked plans are also quite transparent but you will need to read them very carefully as it is possible in certain scenarios that the premiums paid are not sufficient to pay for all the costs. When that happens, topups might be required.

However, MAS does require all insurers to disclose the distribution costs and put in a table showing the effects of deductions (for those plans with cash values).

The table allows you to compare how much money you will save if you invest money growing at 5.25% p.a. yourself (assuming no fees), to how much cash value an insurance policy will give you if their funds grow at 5.25% p.a.

Obviously, the second amount will be lesser as it needs to factor in the mortality charges and all the other fees.

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5 comments

Roger says 11 years ago

Nuts, you mention that charges increase for whole life policies so I enquired with ntuc income but they say that it will not so I am confused but I tend to believe you, guess no way to confirm as ntuc insist it will not go up

The Watchman says 13 years ago

Insurance salesmen sell on half truth and half lies. It surprises me consumers still trust these liars. I am NOT trying to malign them. It is the truth.
Wake up consumers.

Nuts says 13 years ago

Actually they should be asking the insurance agent from whom they bought the policies. After all, they are paying about 18 months of premiums into that agent’s pocket. If agent cannot answer, then fill in a standard form to the insurance company for change of agent. That agent will suddenly go into damage-control mode and be very attentive to your queries.

Btw, mortality fees or charges increase for wholelife and endowment policies as well, even though it is not disclosed in the yearly statements. You think that you’re just paying a fixed amount for X number of years. For limited-premium wholelife, agents can even tell you no need to pay anymore after the initial 10 years or 20 years. Half-truth — you don’t need to pay from your pocket, but the insurer takes from the annual bonus / asset-share that is due to you.

You can easily see this from the BI of a wholelife policy. The rate of increase in your cash value goes down as you age, especially after the critical 60 yr old mark. Of course you need to do some simple computation on your own from the BI figures. Which no agent will ever do, and anyway 95% of agents don’t know how to calculate.

SW says 13 years ago

Ha, for some companies, it doesn’t even matter if you switch agents as the person who sold you the policy still earns the commission and does not have to suffer any persistency losses if you lapse the policy.

SW says 13 years ago

It sounds odd to me that these people are buying insurance policies from who-knows-where, and then asking for advice online.

Shouldn’t they be making an informed decision first before purchasing the policy? Makes me wonder if they really know what they are getting themselves into.

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Insurance Policy Fee

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