Whole Life and Term Insurance | Guide on Whole Life and Term Insurance Singapore

Insurance | Life Insurance

It takes a time to get your head around the entire insurance situation. Still, at some point in your adulthood, you come to the horrible realization that insurance is not something you can postpone forever and that it is worthwhile to obtain at least some type of life insurance coverage. In this blog, we tell you about Whole Life and Term Insurance in Singapore. 

What is the distinction between whole life and term life insurance?

An insurance policy protects you from financial losses caused by a certain incident. In the case of life insurance, the “event” is the loss of your life, or in the case of total and permanent disability, the loss of your ability to work (TPD). Simply defined, a life insurance policy is structured so that if you die, the insurer’s payout will be sufficient for your dependents to survive after you are gone.

Both term and whole life insurance give coverage in the case of death or total and permanent disability (TPD). The two key distinctions are (a) how long the policy will cover you and (b) how much money you will receive if nothing happens to you.

Whole Life and Term Insurance

Term Life Insurance

Term insurance protects you for a set length of time, such as 20 or 30 years, after which the policy expires. If nothing occurs to you and you do not file a claim, you will receive nothing (apart from a letter thanking you for giving them money for the last 30 years). This sort of coverage is less expensive and makes sense if you only intend to pay for your dependents for a brief period of time. For example, until your eldest child completes his or her tertiary studies.

Whole Life Insurance

Whole life insurance, on the other hand, ensures you till the end of your life as long as you continue to pay the payments. It’s a lot more expensive, but it has the potential to grow your money. The potential growth depends on whether your whole life insurance policy is an endowment plan or an investment-linked policy (ILP).

Endowment vs whole life insurance policies

Whole life insurance in Singapore typically includes a savings or investment component, which are referred to as endowment and investment-linked policy (ILP) respectively. Because of these qualities, some consumers regard their whole life plans as investment/savings plans rather than just a protection plans. Because of these extra characteristics, whole life insurance is more expensive than term insurance.

Related – Health Insurance in Singapore 

Endowment Policies

Because the savings component is embedded into the monthly insurance premiums, endowment policies are sometimes viewed as a means to help you develop financial discipline. Assume you pay a monthly insurance premium of $250 for your endowment coverage. This sum could be divided as follows: $100 for insurance protection and $150 for savings.

After a set amount of time, say 20 years, you will be able to recover some of the accumulated cash value, depending on the guaranteed and non-guaranteed benefits of your policy.

Investment-Related Policies (ILP)

In the case of an ILP, the savings component will be substituted by an investing component in which a portion of the premiums will be used to purchase units in investment funds. ILPs, unlike endowment insurance plans, normally do not have guaranteed values. The value of the ILP is determined by the success of the fund into which you have invested. So, if things don’t go well, you could get nothing, and this represents a possible opportunity cost because you could have put that money to work for you somewhere else.

Some consumers like ILPs because they like the idea of being able to invest and be financially protected with a single financial product. There are also a variety of funds to pick from that cater to various financial objectives.

Whole Life and Term Insurance

Who should consider purchasing whole life insurance?

While it may appear that the “buy term and invest the rest” motto makes perfect economic sense, there are times when purchasing whole life insurance is a superior option. The necessity for life insurance is determined by your stage of life. If you’re a young 20-something with no dependents and few responsibilities, you probably don’t need a whole life insurance policy.

However, suppose you are 45 years old and the sole breadwinner in a family with two small children and elderly parents. In such a circumstance, full life insurance can help to give financial security to your loved ones while also assisting you in accumulating some retirement assets for your golden years.

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