Term Life and Whole Life Insurance Comparison in Singapore
What is Life Insurance?
Insurance gives you, your loved ones and family, financial protection against your income or financial loss due to your death or when you suffer from a total and permanent disability.
In another perspective, just imagine you like chocolate, and I hand you a piece of chocolate and accidentally you drop the chocolate onto the floor. Now that piece of chocolate got dirty and cannot be eaten and have to be discarded. But if I hand you a piece of chocolate with its wrapper on, even if you drop it on the floor, you just have to remove the wrapper and still able to enjoy the chocolate. You are that piece of chocolate and the wrapper is insurance.
What is Whole Life Insurance?
In whole life insurance, you get life-long protection, most often the default policy term (coverage duration) will be until your age 99 years old or beyond. And you pay premiums throughout your life. There are limited premium payment term, whole life insurance, where you do not require to pay premium throughout your life.
Whole life insurance is available in two forms, such as participating and non-participating policies. Whole life insurance policies also have cash (surrender) values which will build up after a certain period of time, and this differs from product to product.
Participating whole life insurance policies share in the profits of the company’s participating fund in the form of (non-guaranteed) bonuses or dividends to your policy. When making a claim, non-guaranteed bonuses or dividends which have been declared will be paid in addition to the sum assured. Non-participating whole life insurance policies have guaranteed claims benefits, and without non-guaranteed bonuses or dividends.
Whole life insurance is suitable for those who want a long-term (whole life) coverage.
What is Term Life Insurance?
Term life insurance is life insurance that provides insurance coverage only for a fixed period of time. And it is also a non-participating and without cash (surrender) values type of insurance policy. And most often, you will have to pay premiums throughout the period of your coverage.
Obtain term insurance if you only require protection coverage for a certain fixed period of time. For example, if you want to be covered until your youngest child completes his or her university or when your child is financially independent. Another example will be to cover yourself until your mortgage loan is fully paid off.
Most often term policy is a non-participating policy, therefore they do not have any non-guaranteed bonuses or dividends (without surrender value). And because of this term policies premium are often cheaper than participating whole life policies.
What is Whole Life Term Life Insurance?
Most often term policies maximum coverage term will be till life assured’s’ age 65 or 75 years old. In recent years, there are many changes to the insurance industry. As our lifestyle changes and life expectancy increases so does term life insurance policies. Term life insurance had evolved to no longer restricted to maximum coverage of 65 or 75 years old. Now there are whole of life term life insurance policies that provide coverage till age 100. It is still a non-participating policy therefore they do not have any non-guaranteed bonuses or dividends (without surrender value).
Another enhancement to will be limited premium payment term. Now there are limited premium payment whole of life term life insurance, where you do not require to pay premium throughout your life.
Should I Obtain Term Life Insurance or Whole Life Insurance?
Now you are able to compare which type of life insurance is suitable for you. Which type of life insurance should you obtain?
You will have to ask yourself, when you get married to your spouse do you marry him or her whole life or temporary? Just like in building any skyscraper it is important to have a strong foundation. In financial planning, protecting yourself whole life will be that strong foundation. In short, if you have not cover yourself with a whole of life insurance please do so now, in order to build yourself a strong wealth protection foundation.
Do take note that life insurance consists of death and total and permanent disability (TPD) coverage. And most often TPD coverage is tie to death coverage. The objectives of life insurance are wealth protection and legacy planning. If we look at death and TPD coverage individually, death coverage is for your family and can be part of your legacy planning. TPD coverage is for yourself as you are alive but unable to earn an income, thus can be part of your income protection planning.
One Last Thing
There is whole life insurance, term life insurance and whole life term life insurance. Life insurance are available in two forms, such as participating and non-participating life insurance policies. Life insurance objectives can be to, protect your wealth or leaving a legacy. If you had already had a whole life insurance plan, you may calculate your current total coverage and check if its sufficient. As the rule of thumb for life insurance coverage is at least 10 times of your annual income.
Seek help from your friendly financial consultant to help you with your financial planning and go through the 6 stages needs-based sales advisory process. Or Contact me for an Insurance and Financial Planning Service. Here is information on Income and Disability Protection Insurance Planning.
Note: Opinions expressed are solely in Mr. Chan Kong Meng’s personal capacity and neither express the views or opinions of Prudential nor represent any professional advice in Mr. Chan Kong Meng’s capacity as a PACS representative.