Commissioner of Insurance Richard Yuen has expressed concern over the rapid rise in sale of investment-linked insurance products, reminding consumers they should be aware of the risks of underlying investments.

Speaking at a Society of Certified Insurance Practitioners luncheon today, Mr Yuen said due to low interest rates on savings accounts, many traditional life insurance companies are promoting investment-linked insurance products.

New business premium from investment-linked products jumped 200% in the first half of the year, he said, adding that people should be aware that insurance and investment are two different things.

"The purpose of insurance is protection. Recently, the business of investment-linked insurance products has been growing very rapidly. People buying such products should know that some of the investment-linked products have a very low protection element and they may not be able to provide the life protection needed by the policyholders," Mr Yuen said.

Ensure adequate cover

Those who choose to buy investment-linked products should ensure they have already bought sufficient traditional life protection cover, and it pays to always remember the basic principle of investment - the higher the return, the greater the risk.

"People should make sure they fully understand the nature of investment-linked products and that they are able to assume the potential risk before deciding whether to buy such products."

Mr Yuen encouraged people to buy appropriate insurance policies to protect themselves and their families.

"The SARS outbreak and recent tour group fatalities are a timely reminder that it is the duty of the individuals to safeguard their safety and also their families and to ensure that they are sufficiently protected against unforeseeable risks," he said.

"Those who can afford it should buy life, medical, health, property and travel insurance, so they won't be in trouble if something unfortunate happens and they need help.

"Policyholders should always remember that ultimately it is their responsibility to protect their own interests. No matter how close someone is to their insurance agent or broker, they should not feel embarrassed and always remember to ask about details of the premium, the coverage, and more importantly any exclusions, namely those items and circumstances which are not covered by the policy.

"Second, always find out whether the person selling the insurance is an agent or a broker," he said.

Brokers and agents

An insurance agent represents an insurance company and sells policies to the client on behalf of the insurance company. An insurance broker represents the client and his role is to negotiate the best deal from the insurance companies for his client.

Because the agent represents the insurance company, if the client can provide evidence that he has paid the premium to the agent, the insurance company is liable for the policy.

But because an insurance broker represents the client, even though the policyholder has paid the premium to the broker, if the insurance company has not received the premium, the insurance company will not be held responsible.

"Therefore, if policyholders choose to pay the insurance premium through the agent or broker, they should make sure they get a proper receipt and check if the information contained in it is correct," he said.

"If the insurance is bought through an insurance broker, the policyholder must make sure the insurance company has received the premium. People should always make sure they get the policy from the insurance company as soon as possible, and if there is a delay, make direct enquiries with the insurance company immediately.

"Thirdly, people who want to buy investment-linked products should carefully consider their financial position and the element of life protection contained in the products and decide whether such combined investment and protection products meet their needs. They should also make the best use of the cooling off period to read the policy document carefully."

For more important issues on insurance products visit the Office of the Commissioner of Insurance website.