POLICYHOLDERS' GUIDE TO INSURANCE POLICIES WITH CRITICAL YEAR FEATURE
INTRODUCTION
This guide provides basic and general information on the Critical Year (CY) feature that was previously sold as part of some life insurance policies prior to May 1994.
This guide is intended to help policyholders who acquired such policies prior to May 1994 better understand how the CY feature works and what they can do if they have concerns regarding their policies. It is, however, not meant to cover every possible scenario or offer specific advice for an individual policyholder.
What is the “Critical Year”?
Q1. I bought a life insurance policy that has a “critical year” feature many years ago. I am confused with all of the jargon. Can you explain what is meant by “critical year”?
A. Critical Year (CY) refers to the year in the life insurance policy when your policy has accumulated enough value - either through bonuses or dividends over the years- so that you can enjoy full life insurance coverage thereafter without having to pay any more premiums.
Q2. Is the critical year guaranteed?
A. Normally, no. There is no guarantee that the CY will arrive on a fixed date in the future, for example, 12 years from the date the policy was purchased. When a policy reaches its CY depends primarily on past and expected future investment performance. Insurance companies invest the premiums that you pay. If the investments earn lower returns than expected, the company often has the right to reduce dividend payments and bonus rates.
Q3. How will this affect my policy?
A. If dividend payments or bonus rates are reduced, the value of your policy will accumulate more slowly. And you will take longer to reach the CY.
What your agent should have told you before you bought the policy
Q4. I did not know that CY was not guaranteed. Should the insurance company have told me?
A. Yes, insurance companies and their agents are expected to inform customers of all relevant facts about a life insurance policy. This includes information that the CY is not guaranteed, and what this means for you.
Q5. What should my agent have told me before selling the policy?
A. He should have clearly explained to you that the CY was not guaranteed. Did your agent explain this to you, either verbally or in writing? Or did he convey to you that the CY in life insurance policies is guaranteed and that you only needed to pay premiums up to the CY?
Benefits Illustration
Q6. I recall that the agent showed me a piece of paper to illustrate how the CY feature works.
A. You are probably referring to the Benefits Illustration, or Sales Illustration. This is a table showing the financial benefits that you may receive if you purchase the policy and hold it to maturity. Since May 1994, the insurance industry has followed standards on what should and should not be included in a benefits illustration.
If you purchased a life insurance policy with the CY feature after May 1994, you should check with the Life Insurance Association of Singapore (LIA) whether the benefits illustration complies with LIA guidelines. The Annex gives more details on the LIA guidelines.
Q7. What if I had bought my policy before the standards were in place? Isn't it the responsibility of the insurance company to ensure that their agents clearly convey the features of a policy?
A. Yes it is. Even before May 1994, insurance companies were expected to highlight to buyers that the CY in their benefits illustrations was not guaranteed. Their illustrations should have included appropriate disclaimers and warning statements. However, it appears that in some instances this was not done.
Some insurance agencies may also have used their own benefits illustrations that stated or implied that the CY was guaranteed, or that failed to make clear that the CY was not guaranteed.
Check carefully your benefits illustration, to see what it says or does not say about the CY feature of your policy.
Lodging a Complaint
Q8. What should I do if my agent represented to me that the CY was guaranteed, or did not warn me that the CY was not guaranteed? How strong a case do I have?
A. You should check the documents that the insurance company used in connection with the sale or explanation of the policy (before or after the sale). Try to recall any verbal representation or advice that you may have received from your agent.
Specifically look for benefits illustrations, letters, notes or any other memoranda from your insurance company or agent. Do they promise or imply that the CY is guaranteed, or that you will not need to pay premiums after the CY? If so, you may have grounds for complaint.
On the other hand, if you clearly understood that the CY feature was not guaranteed at the time you purchased your policy, or if the CY was not an important factor in your decision to buy life insurance, you should act in good faith and allow your policy to run its course.
Q9. Which documents should I have available if I want to make a complaint?
A. The documents include:
- The benefits illustration provided to you by the company or agent;
- Any form that you signed relating to the CY;
- Any release or acknowledgement signed by you concerning information given to you about the policy and your understanding of that information;
- A copy of the insurance policy;
- Any notes or other documents provided by the agent;
- Any notes you may have made at the time you purchased the policy;
- Any information that supports your claim of what was represented to you about the CY feature by the company or agent;
- Any information that supports your claim that the CY feature was a significant factor in your purchase decision of the specific policy; and
- Where there are gaps in your documentation, any information from around the same time from friends or relatives relating to the same type of policies sold through the same agent, agency or company.
Q10. What if I have misplaced some or all of my documents?
A. Check with family members and/or friends who purchased similar policies from the same insurance company or agent around the same time, whether they have retained their documents. Are their documents similar to those you were given? If so, you may have a case to be treated in the same way as them, even though your own documents are missing.
Q11. What if my agent showed me proper documentation, but told me verbally that the CY feature of my policies was guaranteed?
A. This could have happened. Even if the documents from the insurance company did state that CY was not guaranteed, your agent may have advised you otherwise. In some cases, you may have received or signed the documents only after you purchased the policy.
If so, you may still have grounds to complain to the insurance company. But you will need to justify your claim that such advice was provided to you by your agent and that you relied upon it rather than upon the written documents.
If despite what your agent said, you clearly understood at the time of your purchase of the policy that the CY feature was not guaranteed, then the right thing to do is to allow your policy to run its course.
Q12. I bought the policy a long time ago. What if the agent who sold me the policy is no longer in service with the insurance company?
A. You can still complain to the insurance company, provided you can show that you had relied on the agent’s advice and were misled.
Settling the matter with the insurance company
Q13. I want to make a complaint against my insurance company/agent in relation to the CY feature in my policy. How do I start?
A. First you should contact the insurance company with all relevant documentation and any other information that clearly sets out your circumstances for the company to consider. You can also seek the help of the Financial Industry Disputes Resolution Centre Ltd or FIDReC as set out below.
Q14. What if the insurance company offers me some form of compensation?
A. You should ask the company to clearly explain what it is offering. It should provide you with a document explaining the implications of its offer, including the costs and benefits. If the company offers you only one option, get it to specifically confirm that no other alternatives are available to you, or to other policyholders with similar policies.
If you are offered more than one choice, get the company to explain all of them to you. Make sure you fully understand the different options and their consequences. You may want to ask the company to work out and explain how their proposal compares with what you would have received if the CY feature of the policy was in fact guaranteed.
Consult your accountant, lawyer or financial consultant.
Please see the Annex for a general description of typical characteristics of different types of life insurance policies.
Q15. What should I do if the company wants me to sign legal documents, for example an undertaking to keep the matter confidential, as part of the arrangement to settle the matter?
A. Before signing any documents, you should understand exactly what they mean. Make sure that you also understand and accept the legal consequences of signing them. Be especially careful about signing documents that waive your rights to take action in the courts or mediation by FIDReC, especially before you fully understand what the company intends to offer to you. If you are in any doubt, you should seek advice.
Mediation & other options
Q16. What if my insurance company rejects my complaint or is unreasonable in offering compensation?
A. If you feel that the insurance company has not met your concerns, or if you are not satisfied with the way they are handling your complaint, you may pursue your complaint further through mediation or through the courts.
Q17. Who can mediate on my behalf?
A. Mediation is an alternative dispute resolution process that is available at the Financial Industry Disputes Resolution Centre Ltd (FIDReC). FIDReC is an independent institution specialising in the resolution of disputes between consumers and financial institutions, including insurance companies. FIDReC will look into your case and where appropriate, mediate to resolve your dispute as an alternative to legal recourse. Mediation at FIDReC is free of charge. Where the dispute is not settled by mediation, the dispute is heard and adjudicated by a FIDReC Adjudicator or a Panel of Adjudicators. Mediation and adjudication are likely to be less costly than litigation. If you wish to adopt this option, you can approach FIDReC for help.
There are more details on FIDReC and how to contact them in the Annex.
Q18. Will MAS intervene on my behalf?
A. The MAS does not have the power to arbitrate in disputes between insurance companies and policyholders. These are commercial disputes that can only be resolved directly between the insurance company and its policyholders, or where this does not resolve the issue, by the policyholder taking action in the courts or by means of an alternative dispute resolution scheme.
Q19. What are my legal rights?
A. You should consult your lawyers on your legal rights and options. It may be possible for you to take collective legal action, together with a group of others facing similar circumstances. CASE can advise you on the costs and benefits of the different options available to you. CASE may also be in a position to advise you on what are the implications and the process should you decide to seek legal redress.
ANNEX
(A) LIA Disclosure Guidelines
(B) About FIDReC
(C) About CASE
(D) Types of Life Insurance Policies
(A) LIA Disclosure Guidelines
With effect from 1 May 1994, the Life Insurance Association of Singapore (LIA) issued the LIA Disclosure Guidelines that require all insurance agents to use company approved benefits illustrations (BI) with the prescribed format and disclosure items, including a warning statement that CY is not guaranteed. The guidelines also require insurance agents to obtain the client's signature on the BI with effect from 1 July 1997.
If you purchased a policy after 1 May 1994 and have the BI shown to you by your agent when you purchased the policy, you may wish to check whether the BI complies with the LIA Guidelines. This can be done by checking with LIA. They can be contacted at:
Life Insurance Association of Singapore
20, Cross Street #02-07/08
China Court, China Square Central
Singapore 048422
Phone: 6438 8900
Fax: 6438 6989
Website address: http://www.lia.org.sg
(B) About FIDReC
The Financial Industry Disputes Resolution Centre (FIDReC) can help you if you have a dispute with your financial institution that you have not been able to resolve to your satisfaction.
FIDReC is an independent institution which aims to provide consumers with a one-stop avenue for resolving disputes in the banking, insurance and capital market sectors. It provides an affordable means for consumers who do not have the resources to go to court or who do not want to pay hefty legal fees.
The jurisdiction of the FIDReC in adjudicating disputes is as follows:
a. For claims between insured and insurance companies: Up to $100,000
b. For disputes between banks and consumers, capital market disputes and all other disputes: Up to $50,000
At present, the FIDReC's services are available free of charge to all consumers who are individuals or sole-proprietors. You may lodge your complaint/claim in person, or by fax, post or email. Where your dispute with the financial institution is not resolved through mediation, you can choose to refer your claim to adjudication.
If you choose to do so, you only pay a nominal administrative fee of $50 (before GST).
The FIDReC’s Panel of Adjudicators comprises highly qualified professionals with relevant experience. The panel adjudicates on the dispute and has the power to make monetary awards against the financial institution.
The rulings of the FIDReC’s Adjudicator are final and binding on the financial institution, but not on you. If you are not happy with the adjudicator's decision, you are free to pursue your claim through other resolution avenues. These include approaching the Consumers Association of Singapore (CASE), the Singapore Mediation Centre (SMC) or the Small Claims Tribunal (SCT).
FIDReC contact details are as follows:
112 Robinson Road #13-03
Singapore 068902
Tel: 6327 8878
Website: www.fidrec.com.sg
(C) About CASE
CASE is a non-profit independent organisation set up to inform, educate and protect consumers. It can give advice on consumer problems and helps consumers investigate into cases of unfair practices, unsafe products, unscrupulous selling methods, deception and misrepresentation.
Seeking advice with CASE is free of charge including advice on filing claims with FiDReC and Small Claim Tribunal. However if consumer require CASE further assistance on the matter in a form of a letter, CASE could provide with a fee of $10 and consumer could use this letter to negotiate directly for a resolution with the business. If the consumer wants CASE to take up the matter on his behalf after the initial discussion between CASE and the consumer, consumer will be required to become a member of CASE and pay a minimum administrative fee of $10 per complaint handled and be an Ordinary member for $25 per year or $400 for life.
CASE serves to settle disputes by way of negotiation and mediation rather than by way of court action. The negotiation aims at settling disputes amicably before mediation. If negotiation fails, the dispute will be escalated to mediation. The mediation process is voluntary for Non- CaseTrusted business and neither party will be forced to go for mediation if they do not want to. The mediation is successful only if both parties agree to a term of settlement. Neither party is, however, forced to settle.
If the dispute cannot be settled at the mediation session, other ways of settling the matter will be explored e.g. seeking the court's help through the Small Claims Tribunal, the Subordinate Courts and the High Court.
You can find out more about CASE at its website at http://www.case.org.sg or at the following address:
Consumers Association of Singapore [CASE]
170 Ghim Moh Road
Ulu Pandan Community Building, #05-01
Singapore 279621
Phone: 6463 1811
Fax: 6467 9055
Email: complaints@case.org.sg
(D) Types of Life Insurance Policies
(1) Term Life Insurance: provides coverage for a specified and limited period of time (the “term”). Premiums for most term policies increase with age or at the end of each renewal period. After the policy or term ends, there is no benefit payment if the insured survives beyond the policy period.
(2) Whole Life Insurance: provides lifelong protection to insured. You pay premiums throughout your life, but these can be changed to a limited period. The policy will pay out the sum insured and any bonuses you have built up (if any) when you die or become totally and permanently disabled.
(3) Endowment Insurance: the insured gets both protection and savings. The policy pays the sum insured and any bonuses you have built up at the end of the set period of time (maturity date) or when you die or become totally and permanently disabled if it happens during this period.
(4) Investment-linked Insurance: your premiums buy life-insurance protection and investment units in a managed fund. Like a unit trust, your money is pooled with that of other investors and invested in short and long-term investments. The price of your units depends on how the investments in the fund perform. What it pays depends on the price of the units at the time you cash it in or die. You may also get a death benefit.
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