Sunday, July 19, 2015

Term Insurance: DPI vs non-DPI

Whoa, short hiatus. I was overseas for a short break over this long weekend, but I'm back now! Nothing much has been going on with the markets lately, it's a pretty big yawn, so gonna talk about some non-market stuff.

Since the launch of the CompareFirst website, insurance pricing of simple plain vanilla plans has become a lot more transparent to the consumer.

I think this is a good thing because with more information, people who know how to use that information are able to make better decisions.

So anyway, I decided to compare between DPI and non-DPI term insurance. I took my age, picked a sum assured of $100k and chose no critical illness benefit, and these are what I got to compare.

Obviously, the biggest difference is that one is more expensive than the other - $7 to be exact, or 14.5%.

If you are talking about just plain vanilla term insurance, the difference between the 2 is nothing, except one is more expensive than the other.

Why is non-DPI insurance more expensive? I think there are 2 parts.

The first part is the product. DPI insurance has limitations and can only be covered up to $400,000. Also, DPI insurance is really plain Jane, while non-DPI insurance allows you to add on other riders for all those bells and whistles that you like. DPI insurance only has critical illness rider, while non-DPI insurance can come with riders like Personal Accident and Family Income.

The second part is the cost of distribution. Cost of distribution has 2 parts, one is the commission, the other is the cost of marketing the products. Agent commission here is clear cut. in DPI insurance, there are no commission costs. For non-DPI products, there may be a small commission to the agent that serves you. DPI insurance is not heavily marketed and advertised, while non-DPI insurance is a whole product for the company to manage, which includes printing and distributing marketing materials.

If you are looking at term insurance, which is better, DPI or non-DPI?

Clearly, the answer is that it depends on what you want. (you might want to read more about my personal views on insurance here)

If you want the extra riders that non-DPI insurance can offer, then non-DPI sounds better.
If you just want a cheap insurance with a clear and simple policy, DPI sounds better.

If you don't know what you want, you better not put your signature anywhere, anyhow. If don't know, don't do!

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