How to Read an Insurance Policy Illustration in Singapore

How do you read an insurance policy illustration in Singapore?

Start by separating guaranteed values from non-guaranteed projections, then check the premium schedule, cash or surrender values, death benefits, charges and cost of distribution. MoneySense explains that a policy illustration can show benefits or projected amounts payable on a claim or early termination, including total cash values, death benefits, premiums, charges and distribution costs.

A policy illustration is useful for comparison, but it is not the policy contract itself. Read it together with the product summary, cover page and policy contract because actual benefits, exclusions, conditions and surrender terms are governed by those documents.

Guaranteed vs non-guaranteed values

Guaranteed values

A value shown as guaranteed applies according to the policy terms and conditions. It should be distinguished from values that depend on future investment performance, bonuses or other non-guaranteed factors.

Do not assume every number in an illustration is guaranteed simply because it appears in the same table. Check the column headings and explanatory notes carefully.

Non-guaranteed values

Non-guaranteed values are illustrations rather than promises. MoneySense notes that policy illustrations contain projections and that you may not actually receive the illustrated returns. For participating policies and investment-linked policies, some illustrated cash values or benefits can depend on future investment performance or other non-guaranteed factors.

When comparing policies, treat non-guaranteed figures as scenarios rather than contractual outcomes.

What numbers should you check first?

A practical review can start with these items:

1. Premium amount and payment period: How much must you pay, how often, and for how many years?
2. Guaranteed cash or surrender value: What amount, if any, is shown as guaranteed if the policy is ended at different points?
3. Non-guaranteed cash or surrender value: Which portions depend on future performance or other non-guaranteed assumptions?
4. Death benefit: What amount is guaranteed and what portion, if any, is non-guaranteed?
5. Early-termination values: What does the illustration show if the policy is surrendered in earlier years?
6. Charges and cost of distribution: What costs are disclosed, including distribution costs associated with the sale of the policy?

These figures should be read alongside the definitions and notes in the illustration rather than compared as headline numbers alone.

What is cost of distribution?

MoneySense states that the policy illustration includes the cost of distribution, which includes commission paid by the insurer to the financial advisory representative or agent. This is useful when reviewing the economics of a policy, but it is only one part of the overall product structure and should be considered together with benefits, premiums, charges and surrender terms.

Why surrender values matter

A life-insurance policy can be a long-term commitment. If a policy has a surrender value, the amount available in earlier years may be lower than the premiums paid. The exact value and any surrender-related consequences depend on the specific policy terms.

Before surrendering or replacing an existing policy, obtain the current surrender value from the insurer and understand which benefits would end. Do not rely only on an old illustration when making an exit decision.

What other documents should you read?

MoneySense lists several documents that may accompany an insurance recommendation. Depending on the product, these can include:

• the Financial Needs Analysis documentation;
• cover page;
• product summary;
• policy illustration;
• Product Highlights Sheet for an ILP sub-fund;
• bundled product disclosure document; and
• policy contract and endorsements.

The product summary helps explain features, exclusions, limitations, fees and charges, while the policy contract is the legal document governing the cover.

What about the 14-day free-look period?

MoneySense states that life insurers provide a 14-day free-look period starting from the date you receive the policy documents. Use that period to review the documents carefully. If you cancel within the applicable period, the insurer generally refunds premiums less medical and other expenses already incurred; for investment-linked policies, changes in market value may also affect the amount returned.

Check the insurer's actual cancellation procedure and policy documents rather than assuming the same mechanics apply identically to every product.

A simple policy-illustration checklist

Before accepting an illustration at face value, ask:

• Which values are guaranteed?
• Which values are non-guaranteed or projected?
• What are the premiums and how long are they payable?
• What are the cash and surrender values at different years?
• What happens on death or another insured event?
• What charges and distribution costs are disclosed?
• What happens if premiums are reduced, stopped or the policy is surrendered early?
• Do the product summary and policy contract contain conditions or exclusions that the illustration does not fully explain?

Key takeaway

A policy illustration is a comparison and disclosure tool, not a promise that every projected value will be achieved. Separate guaranteed and non-guaranteed figures, check surrender values and charges, and read the illustration together with the product summary and policy contract before making any decision.

This article is general insurance education only. It does not recommend keeping, buying, surrendering or replacing a specific policy. A personalised recommendation should only follow a proper assessment of your objectives, financial situation and particular needs.