Want to know more about whole life insurance plans in Singapore?
You’re in the right place.
By the end of this article, you’d know whether it’s suitable for you or not.
The topics we’ll be covering:
- What is life insurance coverage for
- The 2 main options for income protection
- What is a whole life plan and what are its features
- Who are they most suited for
- … and more
So, read on!
- Taking the First Step: Protecting Your Income
- How Much Coverage Do You Need?
- 2 Ways to Protect Your Income: Term and Whole Life Insurance
- What Is Whole Life Insurance?
- 3 Core Features of the Whole Life Multiplier Plan
- One Downside of Whole Life Plans
- Whole Life Plans Are Great for These 5 Groups of People
- Finding the Best Whole Life Insurance Plans in Singapore (2021)
Taking the First Step: Protecting Your Income
Many of us will go straight into finding out what whole life insurance is, but may not know the reason why life insurance is important.
Among many reasons, people get life insurance coverage because they want to protect their income.
If you’re a sole breadwinner, or contributing to the family’s household income, or have people depending on you such as kids or parents, or have liabilities that you’ve undertaken and you need to repay them, your income is of outmost importance.
Your income is needed for so many things:
- Pay for daily expenses
- Your wants and needs
- Kid’s education
- Supporting your family
- Saving for retirement
There are 2 scenarios that can stop your income from coming in:
1) Getting fired or quitting
In Singapore, you can easily find another job within a three to six months period. So this loss of income during this period is only temporary.
Furthermore, if you’re already planning to quit, you would’ve already found another job before pulling the plug.
2) Permanent and unexpected reasons
The three big reasons that will heavily reduce the ability to earn an income:
- Total and Permanent Disability
- Critical Illness
When any of that happens, you might not be able to do any form of work to earn an income anymore.
What happens to the future income that’s needed to pay for the essentials that are listed above?
So that’s why protecting your income comes first, before wealth accumulation. It should have a higher priority over savings or investment needs because if you lose your income, none of those matter anymore.
At this stage, most would agree on the importance of protecting their income against uncertainties.
But then, the next question is, how much is enough?
How Much Coverage Do You Need?
Knowing that life insurance is important is just the first step. How much is needed is the second.
If your monthly income is $10,000 ($120,000 annually), and anything happens to you now, you would’ve lost the potential income from now to your retirement age.
So if you’re 30 years old now and plan to retire at 65, that potential loss of income is $4,200,000 ($120,000*35).
Protecting that income means getting coverage of $4,200,000.
Now some may say that the amount is too much and you should cover for just your expenses. But your income is not just meant for expenses, if not, you’re merely surviving day-by-day. There are still other needs such as retirement and providing for your kid’s education.
Having said that, the amount of coverage you should have is entirely dependent on you, as long as it fits your budget, you’re comfortable with the payouts (if something happens) knowing the implications of under-insuring or over-insuring.
You can play around with our life insurance coverage calculator too.
After roughly knowing how much coverage you should have, the next step would be to find to a solution that fits your needs.
2 Ways to Protect Your Income: Term and Whole Life Insurance
There will always be two main camps, term insurance and whole life insurance, to solve this income protection gap.
Each camp will always say they’re right because of this and that.
Neither parties are wrong, as it all depends on your needs, preferences, etc.
Other than the coverage amount, there are a whole lot of other factors that will steer you to one camp or the other, or both.
I’ve written a detailed article of the differences between term and whole life insurance.
But here’s a summary of the pros and cons.
|Term Insurance||Whole Life Insurance|
|1.||Purpose||Pure insurance protection||Some insurance protection together with a savings component|
|2.||Sum Assured||Usually much higher. Common to see $1,000,000 or more||Generally lower. But with multiplier, it can be much higher|
|3.||Claim Payouts||Sum Assured as per contract||Sum Assured + Accumulated Bonuses (if any)|
|4.||Cash Value||No cash value||Combination of guaranteed and non-guaranteed bonuses|
|5.||Coverage Period||Many options available||Lifetime or till 99/100 years old|
|7.||Premium Term||Same as policy term||Usually limited pay. Can be 20, 25 years, etc.|
|8.||Complexity||Very simple||Slightly more complex because of the non-guaranteed bonuses|
|9.||Flexibility||Able to cater specifically to individual needs well||Can be quite rigid. Once committed, have to stick with it|
You can learn more about term insurance plans, but as this article is on whole life plans, I’ll only talk about the latter from now on.
What Is Whole Life Insurance?
A whole life insurance is a policy that offers coverage that lasts till the end of life or usually up to 100 years old.
This is important in today’s context as the average life expectancy in Singapore is getting higher every year. It stands at 83.6 years now and is expected to hit 85.4 in 2040.
The policy also offers a cash/surrender value.
In short, the premiums you pay goes into insurance coverage and the “value” in the policy can generate potentially higher returns.
There are two main types of whole life insurance policies: participating and investment-linked.
1) Investment-Linked Whole Life Insurance
Part of the premiums you pay is for insurance coverage, and the rest goes into investments.
You can still retain this plan for life (or till 100), but usually the insurance charges go up with age, and becomes extremely costly at later ages till it eats into the value of the investments.
As investments are volatile, the “cash value” inside will rise and fall depending on the specific funds you invest in and therefore, is not guaranteed.
For these reasons, the next type, participating, may be a better option.
2) Participating Whole Life Insurance
In a participating policy, all the premiums from policyholders are pooled together into a participating fund.
The insurance company then reinvest the monies in this fund. This is why they can provide you with cash value, in the form of guaranteed and non-guaranteed returns.
As the policy holds cash value, if you were to surrender in the future, you can receive a payout. The amount you can get back depends on how long you held the plan for. The longer you hold, the higher the cash value.
This is the most common type of whole life policy out there.
There are also variations:
Firstly, in a “traditional” whole life plan, the premiums you pay is usually for life, even after your retirement age. This may not be feasible and as such, these plans are phased out now.
Second on the list is the “jumbo” whole life plan. This is a single premium whole life plan that is catered for those who have a single lump sum amount set aside to leave for their beneficiaries. Such plans are meant to increase the size of the insured’s estate when he or she passes on. It”s for legacy planning.
Last on the list is the whole life multiplier plan. It is an all-in-one plan that’s able to provide a higher coverage amount (without costing a bomb) and can be funded with regular premiums spread over a limited period of years (and not for life).
The multiplier plan became the most modern and common type of whole life plan now, and we’ll talk about it for the rest of this article.
3 Core Features of the Whole Life Multiplier Plan
Here are the important features:
1) The multiplier effect
What makes the plan unique is obviously the multiplier.
There is still a basic sum assured, but you’re able to select a desired multiplier (usually 1 to 5 times of the basic sum assured) so that you can enjoy an enhanced cover.
This enhanced cover lasts for the entire multiplier period (usually till 70 years old).
For example, in a $200,000 basic sum assured with a 5x multiplier whole life plan, the basic sum assured coverage is $200,000 for life, but there’s an increased coverage amount of $1,000,000 (5x) till age 70. After 70, the death benefit becomes the basic sum assured plus any bonuses.
This is like a combination of term and whole life, in one plan.
With it, you can get a higher coverage for the most important period, your income-generating years, and yet still able to accumulate cash value. The best of both worlds.
2) Option to include different types of coverage
Coverage for death is standard for such plans.
Terminal illness and Total and Permanent Disability (TPD) coverage may also be embedded in the basic plan.
And you’re able to add Critical Illness (CI) or Early Critical Illness (ECI) as a rider.
CI coverage is important these days as the probability of contracting one is higher. For example, cancer is more prevalent now than ever before. The lifetime risk of contracting it is 1 in 4-5 Singaporeans.
Furthermore, from an analysis of life insurance claims statistics we did, the number of CI claims exceeded death claims.
3) Limited premium paying term
Back then, there was the only the option of “pay as you go” for traditional whole life plans.
The premium payment period of these whole life plans are for life. One disadvantage is after you retire, you’ll still need to pay the premiums.
And if you’re unable to pay, then the premium can be paid with the cash value you’ve accumulated. However, if the cash value is depleted, it’ll lapse eventually.
These days, there are limited pay options.
Meaning, you can choose premium paying terms of 20 years, 25 years, up to 65 years old, etc.
After the premium payment term is up, then the plan is already “paid for”. You can essentially hold it till the rest of life or when you want to surrender.
This provides a lot more flexibility catered to the different needs of people.
One Downside of Whole Life Plans
There’s just one thing that you must know if you want to take up such a policy.
And that is…
Early termination or surrender.
Having a whole life policy is a long term commitment. You should only plan to take it up if you can satisfy the premium and the premium term.
Depending on when you terminate/surrender, the amount you get back could be lesser than the premiums you’ve paid. Usually in the 20th-30th year is when it should breakeven (still depending on several factors).
But another perspective:
Having the plan ensures that you have coverage plus some form of savings in the long term. You’re able to have access to some savings in the future, however, there may be other better alternatives for wealth accumulation.
Whole Life Plans Are Great for These 5 Groups of People
Whole life plans can cater to specific groups of people.
Although not exhaustive, here are some of them:
1) The Conservative
There are 3 types of people that make up this group:
Firstly, one reason why people are against the idea of term plans is because the coverage expires when the policy term is up. Because of that, they’d rather have a lower sum assured but lifetime coverage with a whole life plan.
Secondly, they feel that the premiums for the term would’ve been “wasted” when nothing happens, especially when they’ve paid for decades. So they want something back, at least.
Lastly, with a term, it’s advisable to invest the rest, depending on the risk appetite. But some may not wish to take any form of risk or park their money elsewhere. To some, whole life insurance can provide convenience.
2) Leaving a Legacy Behind
There are several ways to create legacies for your next generation(s).
One way is to have a term till 99 years old. The premiums you pay for that are much higher since the probability of claiming is almost guaranteed (especially with special clauses that guarantee payouts).
However in such policies, there are no cash value.
The other option is a single premium whole life plan. It is also meant for leaving behind bigger estates, especially when you have a lump sum set aside already. The main advantages is that you can still surrender the policy if needed, as it accumulates cash value. (don’t surrender early though).
3) Buying for a Child
Buying a multiplier whole life plan for a child can be a great gift.
If you’ve chosen the limited pay option of say 25 years, and when your child grows up, you can pass the plan to him or her when it’s already fully paid.
You child have several options:
Firstly, he can keep it for income protection needs. By purchasing it when he’s young and most likely have a clean bill of health, the cost of insurance will be at the cheapest. So he doesn’t need to wait till his adulthood where it’s going to be more expensive.
Secondly, it is a gift because the cash value continues to grow, and when he reaches retirement age or beyond, he can choose to “cash out” the policy.
That’s why most parents apply for a whole life plan as soon as their child is born.
4) Have a Bigger Budget
If you have a bigger budget or have excess money in the bank, and have no idea what to do with it, you can allocate it to a whole life.
Because if you’re going to leave your money in the bank, it’s not doing anything for you anyways. In a whole life plan, the cash value grows.
At least you’re making part of your money work harder for you.
5) Want Lifetime Coverage for Critical Illness and Early Critical Illness
The occurrences of critical illness and early critical illness are higher than death or TPD. And as you grow older, the chances of them striking get higher.
That’s why the probability to claim is higher too (which explains why it’s expensive).
The issue with a term plan or a standalone early CI plan is that you may still need to pay the premiums beyond your retirement age, and thus it has to come out from your retirement funds or surplus cash (if any).
For those who don’t like that idea can choose a limited-pay whole life plan that offers lifetime coverage for critical illness.
Finding the Best Whole Life Insurance Plans in Singapore (2021)
Are whole life plans worth it? Should you get one?
Hopefully by now, you’ve read enough about whole life insurance to make an informed decision.
If you belong to the term camp, you can learn more here.
If you belong to the whole life camp, then it’s time to take the next step by getting a comparison of the best whole life insurance plans in Singapore.