By Gabriel Chen

BUYING a new life insurance policy has been crossed off many people's shopping list amid the grim economic times.

New figures show that premiums for new policies plunged by 64 per cent to $1.04 billion in the fourth quarter of last year, from the same period a year earlier.

Consumers are apparently deferring the purchase of new policies even though insurance is arguably a more prudent move than ever in uncertain times.

The fourth-quarter sales of so-called single-premium products - they require an initial lump sum payment - slumped an even bigger 69 per cent to $811 million.

Regular-premium sales for the fourth quarter were down 16 per cent to $228.8 million, said the Life Insurance Association (LIA) yesterday.

For the full year, single-premium sales totalled $7.64 billion, a 14 per cent drop over 2007.

While risk aversion was a factor, the changes in the Central Provident Fund Investment Scheme (CPFIS) also had a big impact, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

Those new rules on investing CPF money took effect in April last year, cutting the sum available for private investments under the CPFIS.

The CPF has been a crucial market for these single-premium products - such as endowment policies and investment-linked policies.

Singapore's life insurance industry is driven by single-premium and regular-premium businesses. Single-premium sales dwarf regular-premium ones enormously.

Even as equity markets continue to take a tumble and as fears of job losses grow stronger, cash- strapped individuals appear to be putting the need for insurance coverage on the back burner.

In another sign of weakness, LIA figures showed that the policy surrender rate surged to 2.19 per cent in the fourth quarter from 1.9 per cent in the corresponding period of 2007 - a not- so-encouraging sign that more policyholders now feel the need to cash in their policies for emergency funds.

'We foresee that as the recession bites, there'll be more surrenders,' said Mr Paul Chan, a former president of the Insurance and Financial Practitioners Association of Singapore.

In the wake of the 2003 downturn caused by the Sars epidemic, for example, the surrender rate surged to 2.44 per cent in 2004.

LIA president Darren Thomson warned that cashing in or surrendering policies should never really be considered.

'There's a role for life insurance throughout different life stages,' said Mr Thomson, who is also the president and chief executive of Manulife Singapore.

'Everybody knows that when you get married or start a family, there is a need for protection.

'When you start off with a mortgage, you don't necessarily want to leave the other partner with the liability should anything happen to you. And when you're in your retirement, you probably want to consider using your accumulated savings to provide yourself with a comfortable life.'

While experts say surrender rates are not too alarming yet, people should also invest in what they can afford.

Mr Tan Hak Leh, LIA's deputy president, said a surrender rate of 2.19 per cent in Singapore is low compared with those of other countries.

'It's common to see surrender rates of more than 5 per cent in many countries,' he said.

Mr Tan, who is also Great Eastern Life's managing director, declined to specify such countries, but said that insurers in Singapore are recognising particular concerns and issues of policyholders and are designing a range of schemes to assist them.

For instance, instead of having policyholders pay the full premium, insurers would allow policyholders to delay payment of the full premiums or pay a fraction of the premium such that the policy and coverage would continue, he explained.

LIA figures showed that for last year, the life insurance industry in Singapore paid out a total of $5.12 billion to policyholders or beneficiaries.

Of this total, $359 million was for death, critical illness or disability claims.

This article was first published in The Straits Times on February 06, 2009.