Ironically often than not, many of us lives doing things that did not really mattered and or strike resonance with us yet neglect things of true importance to us. Occasionally looking back and admit that we wished we would have done it differently.
It isn’t much surprise that to most, that on our deathbeds, most of us regret not spending enough time with family, or committing too much to work career that we are not enjoying life in fun. While society do observe most people putting priority in work-life balance, not all have the privilege to make that their choice.
While we are working hard to afford life pleasures, are we also looking out for our self-care for the future? The basics of life insurance and the most common placed on the table offer is whole life or term life policy. So what exactly is these products and how to they distinct from one another?
Whole Life Policy
Whole Life coverage that last your entire lifetime, you can opt in for a whole life plan. It typically covers you from the time of purchase to age of 99, you will not have the trouble of having to renewing it after you had purchase it. There are some plans that would offer a limited premium term, which denotes that you are paying premiums for maybe ten or fifteen years but enjoy the insurance coverage for lifetime. This a front load alternative if you would like to pay off the premium during the years you are having a higher income.
Apart from the insurance protection, there would be saving features that you could use to accumulate for cash value over the course of time during this coverage. This would mean that your policy could have a higher sum assured, so you could leave even more for your loved ones when an unfortunate event of death were to happen.
There is another option of Investment Linked Whole Life Policy, the similarity with the one with savings features are both policy would have an amount of sum paid when surrendered or death occurs. However, for investment linked policy the guaranteed returns are not fixed as investment might go either way.
Term Life Policy
Unlike a whole life plan, a term life des not have saving features and does not accumulate and build up the cash value, your paid premiums would go directly on paying for your insurance coverage, in comparison the costing of premiums for term life would be usually much more lesser then a whole life plan. A term life policy would be valid for a specific term and would need to be renewed thereafter, however there would be instances where you would not be able to be renewed due to health conditions after completing that specific term. There are a portion of term life which offer guaranteed renewability upon end of the term therefore selecting a suitable one with the right amount of coverage would be essential.
A good way to judge how much life coverage would be current annual income to multiply by 10 or 15. For example, if you are earning S$30000 annually, you would require a overage of S$300000 of live insurance benefit in the event of death. However, this do not take into consideration of your assets and other investment on hand, any current or future commitments and family situation.
Choosing from a whole life or term policy would be determined by your current affordability and different stages of your financial planning. A simple term plan would cost typically S$500 – S$800 annually which amounts to S$15,000 – S$24, 000 for a period of 30 years however a whole life plan would cost around S$8,000 to S$10,000 which amount to S$240,000 to S$300,000 for a period of 30 years. The whole life policy would have accumulated to an amount for you to withdraw after certain period. The option would be on if you would like to include saving component in it.
A simple illustration on the differences are shown below
Type
Term Life
Whole Life Participating
Main Objective
Pure Protection
Protection plus savings
Coverage
Most plans cover death, terminal illness and total permanent disability (TPD)
Most plans cover death, terminal illness and total permanent disability (TPD)
Coverage Period
Up to a specific age or term (e.g. up to age 55, 65, 75 or for 5/10/20 years).
Entire life or up to age 99.
Payout
Pays out sum assured upon death
Pays out sum assured or accumulated savings (whichever is higher) upon death, or accumulated savings minus any fees upon surrender.
Rider Option
Many options available varies with company (E.g. Critical Illness, Early Critical Illness, Waivers) Varies with company
Many options available varies with company (E.g. Critical Illness, Early Critical Illness, Waivers) Varies with company
Advantages
Premiums are usually lower than whole life plans.
Accumulates cash value; helps with financial discipline in saving. Premiums are usually fixed throughout policy. Option to withdraw cash value before death.
Lose coverage when you stop paying your premiums
Can take out loans from the cash value of your policy.
Straight Forward
Limited Pay Available: Pay premium for a predetermined fix period (E.g. 20/25 years)
Disadvantages
No cash value.
Potentially may not meet short to medium term savings goals, as there is no cash value in early years, since whole life plans are designed to work for the long-term.