Whole Life Insurance Singapore | Pros and Cons of Whole Life Insurance
Insuranceby Priyadarshini 2 November 2023
Or perhaps you’ve heard about the whole term life insurance vs whole life insurance dispute and thought to yourself, same same but different. After all, they’re both life insurance — how can they be more dissimilar? Read about the pros and cons of whole life insurance in Singapore below.
Whole Life Insurance Singapore
Whole life insurance, on the other hand, is a very different beast. In this post, we will discuss the benefits and drawbacks of whole life insurance (versus term insurance).
Related – Insurance in Singapore
What exactly is whole life insurance?
At its most basic, life insurance is simply a contract between you and the insurer in which the insurer agrees to pay out a set amount of money if you die (or become terminally ill, or totally and permanently disabled). Term life insurance, sometimes known as term insurance, is the most basic type of life insurance. As the term “term” implies, you specify how long you want to be protected for — say, 20 years — and the contract is valid for that length of time.
When the policy expires, you can renew it or your protection will terminate. Of course, if nothing happened to you during that 20-year period, you will not be compensated. So, if that’s the case, whole life insurance appears to provide lifelong life insurance protection, correct? Yes, but that’s only part of the narrative. Aside from the standard death payout, whole life insurance has an additional financial benefit. You have the option of cancelling your insurance in exchange for a separate payout (referred to as “cash value” or “surrender value”).
Term life insurance vs. Whole life insurance
If you have dependents, you should consider purchasing life insurance. If you died, the payout would assist them to get by in the short term. If that’s all you require, term life insurance is an excellent place to start. If you want the extra features, you should probably look into whole life insurance.
Almost lifelong coverage
First and foremost, good stuff. The most obvious advantage of whole life insurance is that it provides virtually everlasting coverage. Most whole life insurance policies will cover you for the rest of your life or until you reach a certain age, such as 99 or 100. This removes the need to decide when you want your protection term to terminate. Furthermore, it’s highly certain that you’ll die by then, so your family will almost certainly receive a settlement. (Whether they NEED it at that point is another question!) That being said, there are some term life insurance plans that can cover you up to the age of 101. Here’s an illustration.
Has monetary value
One of the most important benefits of whole life insurance is that it allows you to increase cash value over time. As a result, people consider whole life insurance policies to be a hybrid insurance-investment product. The notion is that you can benefit from life insurance while you still have dependents. However, once they are no longer reliant on you, you can choose to pay out your insurance.
The whole life insurance policy then pays out a cash value or surrender value, albeit there is no assurance that you will make a profit if you cash out early. This cash value varies somewhat. It could include a guaranteed component as well as non-guaranteed incentives or dividends based on the profitability of the insurer’s assets. The objective is that this cash worth will exceed the whole amount of premiums paid over the years.
The main disadvantage of whole life insurance is how much more expensive the premiums are when compared to term insurance. For a 30-year-old, term life insurance premiums might range from $18 to $100 each month. For the same amount of coverage, you’d normally need to pay at least 10X the amount (so anywhere from $200 to over $1,000 per month!) with whole life insurance.
Why is whole life insurance so expensive? The monetary value. When you pay your premium, say $1,000, the insurer allocates a part, say $100, to insurance coverage. After fees and commissions, the remaining $900 is invested. This helps to increase the cash value of your whole life insurance policy.
Whole life insurance is also a lot more complicated than a hybrid insurance-investment package. First, there’s the issue of determining the cash worth. What is a certain component? What kind of non-guaranteed bonuses may you expect? When will you receive your (non-guaranteed) dividends? What exactly are “multipliers”?
Some whole life insurance policies allow for partial withdrawals at a later date, however, this may reduce the cash value. Meanwhile, several policies provide “premium holidays” and/or “limited pay,” which let you to avoid paying high premiums if you are laid off or retire. But, once again, determining these is far from simple.
Is whole life insurance appropriate for you?
It all depends on what you want to get out of your policy. If you’re searching for simple financial security, term insurance is usually more than enough (and much less expensive). However, whole life insurance may be appropriate for you if…
You are utilizing it to assist you in accumulating cash for the future. You would be interested in the monetary value portion. You won’t be able to reproduce that with simple term insurance; you’ll also need to manage your own, independent investments.
You want life insurance coverage for the rest of your life, not just until you reach a specific age. For instance, if you have family members who will be financially dependent on you for the rest of your life. Some whole life policies also allow you to pay the premiums in advance/over a short period of time, so that if something happens to you, later on, your dependents would be taken care of.