Last month, as part of efforts to complement the government’s relief measures for companies and individuals, the Monetary Authority of Singapore announced special concessions regarding loan repayments and insurance premium payments.
Since then, there have been hundreds of queries from policyholders about how they can go about deferring their premium payments.
In this article, we will be discussing the issue of insurance premium deferments, as well as the questions consumers should have clarity on before making the decision to defer their premium payments.
#1 Why Are Insurers Allowing Insurance Premium Deferments?
First of all, understand that this option of insurance premium flexibility was mandated by MAS, which insurance companies then trotted out as part of their COVID-19 support for customers, and their tied representatives could proudly share with their clients about. So, the insurance companies already enjoyed a public relations boost from a MAS-mandated measure.
Second, with the significant impact of COVID-19 on the economy, many Singaporeans are struggling with getting by on basic necessities and financial commitments. And in these tough times, expensive premiums on insurance policies that sounded like good things to have, would probably be the first to be cancelled.
Rather than seeing a wave of insurance policy cancellations, the deferred premiums would retain customers who will only need to worry about paying their premiums up to six months later, when hopefully the economic situation has improved. These customers would then owe premium payments for the period of deferment.
At least one insurer has revealed that if customers exercise the option to defer their premium payments, commissions due to agents would be likewise delayed.
As we can see, insurance premium deferments help insurance companies, as much as it does consumers.
#2 What Is The Criteria For Allowing Insurance Premium Deferments?
When we wrote about the news from MAS announcing the premium deferments, we also referenced the press release by the Life Insurance Association, Singapore (LIA Singapore) hoping to find more details of the deferment criteria.
What this tells us is that there are two criteria for qualifying for the deferment.
Criterion 1: Premium due date or policy renewal date must fall between 1 April 2020 and 30 September 2020 inclusive.
Criterion 2: Policyholders must be facing financial difficulties.
As you can see, the latter criterion is ambiguous, and hearing that deserving cases will be assessed based on insurers’ considerations doesn’t bring a lot of assurance.
Wishing for more information, we reached out to LIA Singapore to find out more about what these considerations are, and whether this is standardised across all insurers.
LIA Singapore responded with the following:
Source: Life Insurance Association, Singapore
It seems that both approval criteria and duration of deferment would be up to the respective insurers, with the common principle of helping those who are affected by COVID-19. Some insurers have stated that in addition to being retrenched and seeing an income reduction, those who are placed on compulsory unpaid leave also qualify.
Since it is in the insurers’ interests to keep the customer, we should expect deferments to be granted, so long as the company is confident you won’t default on payments after the grace period. Some insurers have explicitly stated for policyholders to be granted deferment, they must have a history of good payment.
Your insurer’s exact eligibility criteria is something you need to ask the company about.
#3 What Happens After The Premium Deferment Period?
While enjoying a grace period for your insurance premium payments is well and good, it is not a waiver nor a discount. Understanding your repayment obligations after the deferment period expires is critical.
In the original LIA Singapore press release, it states:
Wanting to learn more about the “implications” of exercising the deferment option, we once again reached out to LIA Singapore for clarification. The following is their reply:
Source: Life Insurance Association, Singapore
In other words, you should find out exactly what the repayment schedule will be after the grace period – whether it gets amortised over a period of time or if a balloon payment of all the premiums you owe is suddenly due.
If you do choose to defer your premium payments, you will need to factor this monthly cost into your budget and set aside the money, otherwise, you risk not having enough cash when the charges are eventually due.
#4 Can I Afford The Insurance Premiums, Even If Payment Can Be Delayed?
Sustainability is an important principle when planning to buy insurance, which is a multi-decade, or even lifelong, commitment.
If as a result of this crisis, you realise that your insurance commitments are too high and are not sustainable, then choosing to defer your premiums will only exacerbate the problem – and not solve it.
Also, if your financial circumstances changed drastically and will remain so for the foreseeable future, then it might be a good idea to speak with a trusted financial adviser to relook your insurance coverage options and tweak it so that you are adequately covered at a level you can afford.
You might find that it makes sense to cancel certain policies, rather than keeping your existing coverage and postponing payment that you can’t afford anyway.
Other Options Beyond Premiums Deferments
If you do decide that you wish to retain your existing policies after a detailed review and discussion with your financial adviser, deferment is only one of many options you have.
Some policies allow you to take a premium holiday, policy loan, make a partial withdrawal, or claim under a retrenchment benefit.
You should speak to a trusted adviser about the implications of exercising these options and the costs involved.