Life insurance is often sold as a financial safety net—something every responsible adult should have. But what if the very people selling it are more motivated by commissions than by your actual protection needs? In Singapore, Malaysia, and many parts of Asia, life insurance remains one of the most misunderstood financial products. The truth is that many people end up buying plans that are either too expensive, poorly matched to their goals, or worse—almost impossible to exit without losses. And much of that has to do with how insurance agents are incentivised.
In both Singapore and Malaysia, the life insurance industry has undergone regulatory tightening in recent years. Yet the traditional agency model, where agents earn their income almost entirely through commissions, still dominates. This creates a structural misalignment. The more premium you pay, the more your agent earns. While not every agent misuses this model, the pressure to hit sales quotas and earn upfront commissions remains high. That pressure, if not properly disclosed or managed, can result in consumers being nudged toward policies they do not fully understand—or need.
The first thing to know is that agents typically receive their largest commissions during the first year of the policy. Some products offer as much as 40 to 60 percent of the first year’s premium as commission, especially whole life or endowment plans. Term insurance, by contrast, pays far less. This leads to a natural skew in product recommendations. Even if a lower-cost term policy is more appropriate for a young couple with a mortgage and children, it is not necessarily the product that maximises agent income. In practice, this means that many buyers are shown a glossy “life savings plan” that bundles insurance and investment together, even if the projected returns are far lower than what can be achieved elsewhere.
What’s more, many of these policies come with a feature known as cash value. This is the portion of the policy that theoretically grows over time, acting as a savings component. However, in most cases, cash value does not accumulate meaningfully for the first few years. A consumer may pay premiums diligently for five or more years, only to discover that surrendering the policy would return less than half of what they’ve paid in. This happens because the early years are front-loaded with costs—commissions, administrative fees, and internal charges. The cash value only begins to catch up much later, and even then, the projected returns are not guaranteed.
In Singapore, the Life Insurance Association publishes guidelines and benefit illustration templates that show consumers the difference between guaranteed and non-guaranteed benefits. Yet even with disclosures in place, many buyers don’t fully understand what they’re signing. In Malaysia, Bank Negara imposes similar rules under the Financial Services Act, but again, the onus remains on the buyer to ask the right questions. And in most cases, buyers don’t know what to ask.
Some planners and critics recommend a different approach: buy term and invest the difference. Term insurance is pure coverage with no cash value, making it significantly cheaper. A $500,000 term plan might cost just a fraction of a whole life plan with similar coverage. The savings can then be redirected into ETFs, unit trusts, or CPF SA top-ups in Singapore, or into PRS funds and ASB accounts in Malaysia. This strategy allows for more liquidity, better returns, and greater transparency. Yet very few agents promote it—again, because term insurance yields much lower commissions.
That being said, buy-term-and-invest-the-difference only works when the “difference” is actually invested. For salaried professionals with little time or investment knowledge, this requires discipline and planning. It also requires clear financial goals. If the funds saved from lower insurance premiums end up being spent on travel or lifestyle inflation, the strategy loses its protective value. And unlike whole life plans, which can force a kind of automated savings behavior, term-plus-investing demands personal accountability.
A particularly emotional pitch that some agents make is child life insurance. These are policies that offer life coverage and savings plans for children as young as a few months old. The sales logic is simple: lock in a low premium for life and give your child a financial head start. But most financial advisors disagree with this strategy. A child does not have income to protect. The main reason to buy life insurance is to replace lost income in the event of death. Since children do not earn, the need for coverage is nearly nonexistent. Worse, these plans are often pitched as “education savings,” when in fact they are low-yield instruments with limited liquidity.
Financial experts like Suze Orman and Dave Ramsey have long criticised child life insurance. Their stance is clear: parents should focus on protecting their own income and building savings or investment portfolios for their children—not locking money into inflexible policies. In Singapore, the Child Development Account (CDA) and in Malaysia, the SSPN-i education savings scheme offer far more flexible and purposeful tools for funding a child’s future. Life insurance, in this case, offers little strategic value.
Another often-overlooked factor is surrender cost. Many policyholders find themselves stuck with an unsuitable policy but hesitate to exit because of sunk cost fallacy. They may have already paid for several years and don’t want to “lose” the money—even if continuing the policy causes further misalignment with their financial goals. The truth is, in some cases, surrendering and reallocating the funds—even at a loss—may be the smarter long-term decision. But this conversation rarely happens between agents and clients. The reason is simple: advising a surrender means losing future renewal commissions.
In Singapore, one increasingly popular alternative is engaging a fee-based independent financial advisor (IFA). These advisors are licensed to sell products from multiple insurers and are often paid through flat fees or a percentage of assets under advice. This reduces the commission bias and allows for a wider comparison of policies. Similarly, in Malaysia, independent planners with a Certified Financial Planner (CFP) or Islamic Financial Planner (IFP) designation may operate on a fee-only basis. These advisors are more likely to recommend term coverage or hybrid solutions that better match life stage needs.
Regulators have started to address these imbalances. The Monetary Authority of Singapore introduced the Balanced Scorecard Framework to assess non-sales factors such as compliance and product suitability in evaluating agent performance. Malaysia’s Bank Negara has enforced product disclosure rules and introduced initiatives like the Financial Adviser’s Representative framework. But consumer behavior changes slowly. Cultural trust in agents—often family members, church acquaintances, or community referrals—remains strong. And in many cases, the personal relationship masks the underlying sales pressure.
That’s why understanding the structural incentives of life insurance sales is so important. Buyers need to ask not just “What am I buying?” but “Why is this being sold to me?” Insurance is not a one-size-fits-all product. Your needs at age 25 with no dependents are very different from your needs at age 45 with a mortgage and two school-going children. A good policy should protect your income, cover your liabilities, and align with your liquidity needs—not just offer a “projected return.”
It’s also worth noting that many policies use optimistic projections to illustrate future value. In both Singapore and Malaysia, insurers show scenarios based on 3 to 5 percent annualised returns. But these are not guaranteed. They depend on market performance, fund management fees, and internal rebalancing decisions that are rarely transparent to the policyholder. In the current low-interest-rate environment, some policyholders may never see the upper-end projections come true. And if those projections were the basis of your decision, the policy may underdeliver on your financial expectations.
Even worse, switching plans or “upgrading” policies later on can trigger new surrender charges, health declarations, or policy exclusions. Life insurance contracts are sticky by design. Once you’re locked in, it’s hard to move without penalty. That’s why the decision at the start matters so much. You need to think in terms of protection-first, liquidity-second, and investment-last—because the first two are what insurance is actually designed to do.
So how should consumers approach this decision? It begins with clarity about what you're insuring. Are you protecting income? Covering debts? Providing for dependents? Once that’s clear, it becomes easier to select the right product. For most working adults, term insurance for the working years combined with a proper savings and investment plan provides the best combination of affordability and coverage. Whole life insurance may still have a role—but usually for estate planning or long-term legacy building, not as a default.
Ultimately, the best way to protect yourself from being sold the wrong policy is to work with someone who isn’t incentivised to sell at all. That means choosing advisors who are paid to advise—not to push product. And it means learning enough about your own financial needs to know when a product doesn't fit. In a world of slick brochures, emotional sales stories, and complicated projections, your best tool is a simple question: What am I really paying for—and what problem does this policy solve?
The answer, more often than not, reveals whether the product is designed to help you—or to help someone else hit their quota.
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