‘Capital guaranteed’ label for investment-linked policies misleading: MAS, Life Insurance Association

[SINGAPORE] The Monetary Authority of Singapore (MAS) and Life Insurance Association (LIA) have issued stern warnings against the use of the descriptor “capital guaranteed” for investment-linked policies (ILPs), in their latest effort to stamp out such misrepresentations.

Over the past few months, some insurance agents and financial adviser (FA) representatives have used the term “capital guaranteed upon death” to refer to the death benefit of ILPs.

This is an attempt to appeal to Singaporeans’ penchant for safer investments, especially among seniors and pre-retirees who seem to be the main targets.

The death benefit of ILPs typically has a guaranteed component, but there is no capital guarantee.

Some advisers have also sought to persuade prospective clients to fulfil only half of the Full Retirement Sum (FRS) in their Central Provident Fund (CPF) Life accounts – which means satisfying only the Basic Retirement Sum (BRS) – and to invest the other half in an ILP.

According to the proposition, the combined income from CPF Life (BRS) and the ILP would offer a higher eventual monthly payout than the individual stands to receive had he or she fulfilled the FRS.

For CPF members turning 55 in 2026, the BRS is S$110,200 and the eventual monthly payout at 65 is estimated at S$950. The FRS is S$220,400, and the expected monthly payout S$1,780.

Providend CEO Christopher Tan in his Money Wisdom column in May cited one such case. In the proposal, the FA rep described the ILP as “capital guaranteed upon death” with “dividends for life”.

The product in question was an ILP apparently issued by Etiqa and FWD. FWD has disavowed such marketing approaches.

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“It has been brought to our attention that there was a document presented recently… that misrepresented products from multiple companies, including our own, in comparison with CPF Life. We are currently investigating this unauthorised and misleading material in close coordination with the LIA.

“We can confirm that none of our authorised product brochures or marketing materials contain any such comparisons. Any material with the use of the FWD name or brand requires our prior approval under the legal agreements we have with our distributors, and we have reminded all our distributors of their legal and professional conduct obligations.”

MAS’ expectations

MAS said it expects FA reps to “act honestly and in the interest of customers when providing financial advice”. “Sales materials, including those for product comparison, must be accurate and clear. Key product features, risks and charges must be disclosed in a manner that does not mislead the customer.

“Presenting a non-capital guaranteed product as capital guaranteed is unacceptable and does not meet MAS’ fair dealing expectations for licensed FAs.”

MAS said consumers who have concerns about how a product was marketed to them should approach the financial institution that the salesperson represents. “MAS requires all financial institutions to monitor the sales practices of their representatives and take prompt disciplinary action in accordance with internal policy.”

LIA executive director Chan Wai Kit said ILPs are not capital guaranteed, unlike some insurance products such as endowments which may offer such guarantees.

He said: “The term ‘capital guaranteed upon death’ is not industry-recognised and does not appear in ILP standard documentation… Consumers should not be misled into believing their capital is protected from market risks when it is not.”

He said ILPs’ death benefit forms part of the insurance protection component and should be clearly disclosed and defined. “A death benefit is an insurance payout triggered upon death and should not be conflated with a capital guarantee, as the investment value of an ILP may still fluctuate and be subject to market risks during the lifetime of the policy.”

Last December, LIA issued an industry guidance to member companies not to use the term “capital guaranteed upon death” in marketing materials or verbal explanations of ILPs. “Descriptions of policy benefits should be accurate, appropriately contextualised and consistent with policy terms and conditions.”

In the first quarter, around S$723 million worth of linked policies were sold, giving it a 43 per cent share of total new business of S$1.69 billion. Sales of single premium policies surged by more than 36 per cent year on year to S$463 million.

FA reps’ requirements

Chan said FA reps are required to conduct proper fact-finding and suitability assessments, and provide balanced explanations of product features, risks, fees and limitations to help consumers make informed decisions.

“During all stages of communication, including prospecting and sales process, FA reps should conduct themselves in a professional manner and not use inappropriate terminology that may potentially mislead consumers.

“The industry takes fair dealing and responsible conduct seriously, and will take the necessary actions against any errant financial advisory firms or representatives where there is evidence of misconduct or misleading representation.”

The Financial Industry Disputes Resolution Centre (Fidrec) said it received 160 claims relating to ILPs last year, compared with 211 in 2024 and 55 in 2023.

“These claims generally centre on allegations of market conduct issues which refer to practices like mis-selling or misrepresentation, inadequate disclosure of information about the ILP or giving inappropriate financial advice.”

For cases handled by Fidrec, the availability of recourse depends on whether there was wrongdoing by the financial institution that caused the consumer to suffer financial loss.

These include failure to disclose material product information, false or misleading statements, or making a recommendation to invest in a product without a reasonable basis.

There is no claim limit for mediation at Fidrec, but if a case proceeds to adjudication, the claim limit is S$150,000 per claim.

Following an industry consultation last year, ILPs will be classified as complex financial products, requiring their own product highlight sheet, regardless of whether their underlying sub-funds are complex or non-complex.