Unbundled is a term that describes the itemizing of components and benefits and selling them individually.
It is a term that is most often observed in life insurance plans.
Bundled life insurance policies for example come with several benefits and features.
One might include a cash value component, plus bonuses in which might be rewarded to policy holders.
Term life insurance would be an unbundled plan that only provides a payout benefit when the insured person dies. It does not come with the various features that other bundled types of policies offer.
The policy holder basically only purchases a plan to insure the life of an individual, with the beneficiaries receiving the benefits upon the death of the insured.
Advantages of unbundled insurance
Term life insurance policies, being probably the most common unbundled insurance product, is a basic no-frills type of plan that insures the life of someone.
This enables people who have no interest in the various additional features of more comprehensive life insurance policies to just get coverage for the only event that matters.
These types of policies, containing little to no fancy features, would have much more affordable premiums. Enabling people to purchase them without paying for additional benefits that they feel adds little value to the plan as a whole.
Additional benefits might even overlap other insurance policies that a person has purchased.
Thus, term life insurance can make a lot of sense.
Because of how simple term life policies are without being tangled up with other components, clients can also adjust the amount of coverage they would like and have the premiums adjusted accordingly.
For example, if someone wants to have a $250,000 cash benefit for 10 years but cannot afford the premiums for that, then he could lower the requirement to $200,000 to have a lower premium. It can then be adjusted accordingly to fit into the client’s budget.
This unbundling of policy components make the calculation of premiums very straight forward. So much so that insurance agents would be able to quote premium prices with the exception of extraordinary cases.
It it can be determine that coverage would only be for a fixed term of 15 years, then there is a specific number that can be worked with to determine a premium.
The period of time an insurer has to cover a person is defined, which enables a tabular approach to premiums and coverage.
In contrast whole life insurance does not have a fixed term. It basically provides cover for the life of the insured. And thus, premium calculation methods would be different.
It must be said that unbundled life insurance overseas in other countries can often come with a cash value. But these features are not available in Singapore and they have no cash value.
And because of that, would not have any policy loan option as they needs to be a cash value to calculate a policy loan quantum.
Consumers can actually take advantage of the direct purchase insurance (DPI) program to purchase life insurance directly from insurance companies to save money.
