By Genevieve Cua

ASIA's brisk pace of wealth creation and accumulation is revving up demand for - as well as supply of - large insurance policies commonly called universal life plans.

But some industry participants are concerned that keen competition and lucrative earnings are spurring bankers to sell such plans to the mass affluent segment as well, who may not understand the policies' risks. The mass affluent are defined as those with net investible assets of at least S$200,000.

Worse still, some of the less wealthy may actually tap premium financing for the plan. Some banks even dangle interest-only financing for the early years of a plan. But this process of borrowing to finance the premiums adds leverage and could magnify risks.

In any case, the market is seen to be so robust that HSBC, for one, is launching a Singapore dollar universal life plan, which it says is the first here. The Sing dollar Jade Global Select Universal Life has a minimum sum assured of S$1.2 million. Among other insurers, Great Eastern Life said it is monitoring interest in a Sing dollar plan.

Modest crediting rate

The crediting rate of a local currency plan, however, will be relatively modest in line with the very low interest rates here. Jade's minimum Sing dollar crediting rate is one per cent, compared to roughly 3 per cent for a US dollar plan. HSBC's new plan, however, offers an option for policyholders to lock in guaranteed annual rates for limited periods of one year (3.5 per cent); three years (2.8 per cent); and five years (3 per cent).

Marcus Teo, HSBC acting head for retail banking and wealth management, says that the bank had received 'very strong' interest in a Sing dollar plan, particularly with the strong appreciation of the Sing dollar. 'The strength and stability of the Singapore dollar and economy gives investors confidence that their wealth is secured in a currency with a positive growth outlook in the long term.'

The Jade series, underwritten by HSBC Insurance, was launched in 2009 and has generated more than US$1 billion in sales regionally. Weighted premiums rose 35 per cent in 2010 and the firm expects business from Jade to more than double this year.

First, some basics. A universal life plan is similar to the traditional whole life plan, but it is non-participating - that is, premiums are not invested into a life fund. Instead, premiums are projected to grow at a specified interest or crediting rate.