The Protection Gap Study (PGS) 2017, commissioned by the Life Insurance Association of Singapore, has revealed that the mortality protection gap has remained at 20% since 2012, despite a 17% uptake in life insurance products and a 48% increase in total savings.
This is attributed to the increased cost of protection needs, which went up 25% since 2012, faster than the pace at which life insurers can provide adequate protection for their clients. Protection needs include funeral costs, loans and the lifestyle needs of elderly and child dependents.
“While we are seeing positive increase in the uptake and awareness of life insurance, we recognise that the needs of consumers have gone up more than their allocated resources due to increased lifestyle needs and requirements, despite corresponding increase in income levels,” said Mr Patrick Teow, President of LIA Singapore. He advised for consumers to conduct an annual review of their policies to ensure that their insurance coverage is sufficient for their needs.
A huge gap in CI protection
The study, which looks at the protection coverage and requirements of economically active adults with at least 1 dependent in Singapore, is the second one that LIA has commissioned since the inaugural study in 2012. The 2017 study also added the analysis of the critical illness (CI) protection.
“We are including the CI component in view of Singapore’s improved life expectancy, a growing incidence of chronic diseases, and escalating healthcare costs. Individuals in Singapore are living with an average of 8 out eighty-two years spent in ill health, and this is coupled with a relatively low take-up of CI protection policies that help cushion the financial impact of living with a CI, which includes a sudden loss of income,” said Mr James Tan, Deputy President of LIA Singapore and PGS 2017 project advisor.
The CI protection gap sits at 80%, assuming the coverage for the financial needs of a family over a 5-year period. The study revealed that a working adult required an average CI protection coverage of approximately SG $316,603, which translates to about 3.9 times the annual income of the average Singaporean. However, Singaporeans have only addressed 20% of that coverage, with a gap of $256,826 currently existing.
Key factors contributing to the CI gap include:
- Lack of understanding of what CI protection is, and the difference between CI and health insurance coverage
- Optimism bias and belief from individuals who do not foresee themselves being afflicted with a CI
- CI coverage being less of a priority, further compounded by the perceived costliness of getting such protection
LIA Singapore will be conducting a qualitative study, premised on the findings of PGS 2017, in order to determine key contributing factors of these gaps and identify initiatives to help consumers bridge them.
Further efforts include continuing the PGS on a regular basis, potentially every 5 years or so, enhancing education efforts through direct online engagements and the introduction of a standard industry-wide digital calculator to help Singaporeans take charge of their protection and health needs.