More complaints from those who take out loans to buy life insurance

Fidrec sees steady increase in number of such cases as interest rates rise

- Chor Khieng Yuit

Senior Business Correspondent Complaints have been steadily increasing about premium financing taking out a bank loan to buy a life insurance policy in tandem with rising interest rates.

The number of such cases began creeping up in 2023 and has continued to tick higher, said Ms Eunice Chua, chief executive of the Financial Industry Disputes Resolution Centre (Fidrec).

Fidrec helps consumers resolve disputes with licensed financial institutions, including banks, life insurers and advisers, through mediation or adjudication.

A person who borrows to buy a universal life policy or a whole life plan pays less cash upfront but has to meet the interest payments on the loan, which might be monthly, every six months or yearly.

These loans are usually offered by banks when the premiums are large, such as for a single premium policy that requires an individual to pay a lump sum upfront.

The bank holds the policy as collateral and in the event of the person's death or terminal illness, it claims what it is owed before returning the balance of the insurance payout to the policyholder's estate, said Mr Eddy Cheong, chief executive of insurance advisory firm Havend.

Ms Chua said the cases Fidrec sees usually have a high loan component for some, it is more than 70 per cent of the premium - and that many of these policies were sold when interest rates were low.

The rates are not fixed on such loans so policyholders face higher monthly instalments when interest rates rise.

"They feel that they were sold the policy on the basis that it would give them a stable income during their retirement. In the end, there's no income, and they end up having to pay money," Ms Chua said.