Whole Life Insurance Plans in Singapore: Ultimate Guide for 2019
You want to know more about whole life insurance in Singapore?
You're in the right place.
By the end of this article, you'll be well-armed with knowledge on this important insurance.
The things we'll be covering are:
The one thing life insurance is for...
The only 2 options for income protection (term vs whole life) ...
Who are the best candidates for whole life plans...
... and more
So, read on!
Taking The First Step: Protecting Your Income
Many of us will go straight into finding out what whole life insurance is, but some of us may not know the reason behind getting it (or just have a vague idea).
Out of the many reasons why one would get a whole life plan, at its core, people get it because of...
Protecting their income.
If you're a sole breadwinner, contributing to the family, have someone who is depending on you like your kids or parents ...
If there are liabilities that you've undertaken...
Or.. although not directly related to income, if you have kids, a whole life insurance could be the best gift to give a child (more on that later).
But all these can only happen because of your income.
Your income is needed for so many things:
- Pay for daily expenses
- Your wants and needs
- Kid's education
- Supporting family
- Saving for retirement
There are 2 scenarios that can stop your income:
1) Getting fired or quitting
In Singapore, you can easily get another job within a 3-6 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.
And... this is something that you can't control at all.
2) Permanent, unexpected reasons
The 3 big reasons that will kill the ability to earn an income and these are:
- Total and Permanent Disability
- Critical Illness
When any of that happens, you wouldn't be fit to do any form of work to earn an income anymore.
What happens to the potential future income that's needed to pay for the essentials and things that you want?
So that's why protecting your income is non-negotiable.
At this stage, most people would believe in the importance of protecting their income against the undesirables. But then the next question is ... how much is enough?
Insurance is a form of backup. When your life is smooth sailing, you will need to prepare for the unexpected so you can have more options when your life is at a downfall
How Much Coverage Do You Need?
This topic sets the stage for a debate from 2 camps. But before I touch on that later, let me show you some numbers...
If your monthly income is $10,000 ($120,000 annually), if anything happens to you now, you would've lost the potential income from now to your retirement age, agree?
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.
So then, what would the 2 camps say?
One camp would say that's reasonable and logical.
If you're part of this camp, then usually a term plan may be the most suitable as it can offer the highest coverage at the lowest cost.
The other camp would say that that's too much. "I don't need so much cover."
And the Life Insurance Association in Singapore chimed in to recommend a cover that is 11 times annual income. This would equate to about $1,320,000 (if your monthly income is $10,000).
If you're part of this camp, then a whole life may be more suitable as it's suited for lower coverage amounts. The premiums of a high cover will be absurdly high.
Neither parties are wrong... as it all depends on your needs and preferences, and other factors too.
The Only 2 Ways To Protect Your Income: Term & Whole Life Insurance
Term insurance and whole life insurance are the only 2 plans that can solve the income protection issue.
It's "either this or that."
Other than coverage, there are a whole lot of other factors that will steer you to one camp or the other.
There are times when people do get both plans and nowadays, there are plans that are a combination of term and whole life components - multipliers
These multiplier plans can provide the best of both worlds...
Before I get to the "debate", let me give you a short overview of what term and whole life insurance are.
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.
There are 2 main types of whole life insurance policies: Participating and Investment-Linked Plans.
1) Participating Whole Life Insurance
One main reason why people get it is because it accumulates cash value. Meaning if you were to surrender in the future, you can receive payouts. The amount you get back depends on how long you held the plan. The longer you hold, the higher the cash value would be.
The other reason is because the coverage lasts for life.
This is the most common type of whole life insurance and it'll be what I'm referring to in this article.
2) Investment-Linked Whole Life Insurance
The other type of whole life insurance is linked to investments.
Part of the premiums you pay goes to paying for the insurance coverage, 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, till it eats into the value of the investments heavily.
As investments are volatile, the "cash value" inside will rise and fall depending on the market conditions and therefore are not guaranteed.
For these few reasons, investment-linked whole life plans may not the most favourable solution.
What Is Term Insurance?
A term insurance is a policy that has a fixed term for coverage, which is set upon application.
After the term is up, you won't be covered anymore. Having said that, the premiums you pay goes straight into protection and thus the term plan can offer a higher coverage for a fixed budget as compared to the whole life plan.
One downside is that there's no cash value. If nothing happens to you, then you won't get back anything.
Term Insurance vs Whole Life Insurance
Here comes the debate...
I'll go through some of the benefits, the pros and cons of each feature of the 2 plans so you can decide which camp you belong to.
1) Coverage Amount
For the term plan, the coverage amount can get a lot higher compared to the whole life plan (within the same budget) because you're paying for pure protection. These days, it's common to see term plans with sum assured amounts of $1,000,000 or more.
For a whole life with the same coverage, the premiums will be sky-high. So naturally, you would lower your cover to fit your budget.
Here comes a new kid on the block: the multiplier whole life plan.
It provides whole life coverage for the basic sum assured and an enhanced cover (usually a multiple of the basic sum assured) for a specified amount of time (usually till 65).
For example, in a $200,000 basic sum assured multiplier whole life plan, the basic sum assured coverage is $200,000 for life, but there's an increased cover for the first 20 years or perhaps to 65 (for example; depending on the plan).
This is like a combination of term and whole life.
You can get higher coverage for the most important period - your income-generating years - and yet still able to accumulate cash value.
2) Coverage Period
The are various coverage periods that you can choose for the term plan. It can be 10,30 years or even till 99 years old, etc. But after the cover period ends, there will not be any coverage.
Most Singaporeans would choose a cover that lasts till their retirement age (income protection, remember?).
In a whole life plan, the coverage period usually lasts for life or till 100 years old.
It's especially useful for people who are concerned with critical illness. As the likelihood of it striking is higher when you're older, you would want to have this cover beyond your retirement age.
3) Choice of Cover (riders)
Both term and whole life plans are similar in this aspect.
The main riders or cover you can add are death, total & permanent disability, critical illness and early critical illness. These are pretty much all you need.
This section talks about the payouts if the undesirable happens.
For example, in the term plan, the death benefit payout will be as per contract (the sum assured that you've applied for).
In the whole life plan, the payout would usually be the basic sum assured (or enhanced cover) plus any bonuses accumulated throughout the plan. So as time passes, the payouts will increase as well.
5) Cash Value
As the term insurance only provides pure protection, there is no cash value accumulated in the plan. So at the end of the day, if nothing happens, you don't get back anything.
This is when the phrase: "buy term, invest the rest" comes in.
This concept may provide more flexibility when you separate both aspects of your protection and accumulation needs as they may be different.
The whole life insurance provides a combination of the protection and accumulation in one plan.
In the accumulation part (or surrender value), there are guaranteed and non-guaranteed values.
For those who are more conservative and are not keen to do any form of investments, it may make more sense as your money is not rotting in the bank.
However, because of the combination, there is less flexibility. You may not draw out the value whenever you like.
Let's say you have a fixed budget of $6,000/year:
This budget for a term plan can allow you a coverage of a few millions (depending on age, and other factors).
For a whole life plan, as part of the premiums goes to insurance coverage and accumulation, the coverage you can get would probably be only a few hundreds of thousands.
To be overly-simplified, premiums for term plans are cheaper than whole life plans.
7) Premium Paying Term
The premium paying period of a term plan is usually the same as the policy term.
When you don't wish to have the cover anymore, you can just cancel the plan (or not just pay the premiums and let it lapse). There'll be no penalties as it does not accumulate cash value at all. Just that you won't enjoy the cover anymore.
There's a variety of options for the whole life insurance...
Back in the older days, there was the only the option of "pay as you go". The premium payment periods of these whole life plans are for life. One disadvantage is after you retire, you'll still need to pay for the premiums. And if you're unable to pay, then the premium can be paid with the cash value you've accumulated in the plan. If the cash value is depleted, it'll lapsed eventually.
These days, there are limited pay options.
Meaning... you can choose paying terms of 15 years, 20 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 time you'll want to surrender or if anything happens.
This provides a lot more flexibility catered to the different needs of people.
Comparison Table: Term vs Whole Life
- Usually high
- Common to see $1,000,000 or more
- Generally lower
- With multiplier plans, can have higher coverage for the income-generating years
- Many options available
- 10, 20, 30 years, etc
- Lifetime or till 100 years old
Choice of Cover
- Death, TPD, CI, Early CI
- Same as term
- As per contract
- Sum assured + Bonuses
- No cash value
- Guaranteed + Non-guaranteed bonuses
- Can be a lot higher for the same coverage with term
Premium Paying Term
- Usually same as policy term
- Can be limited pay like 15, 20 years, till 65 years old, etc
Who Is Whole Life Insurance Best For?
So far, do you think you belong to the whole life camp or the term camp?
(You can visit here to learn more about term insurance.)
If you're not entirely sure, the following are groups of people who think it makes the most sense for them. This list may not be exhaustive.
1) The Conservative
This is just a blanket term for this group.
There are 3 types of people to make up this group...
Firstly, one main concern that people are against the idea of term plans are that they're not covered anymore when the tenure is up, and wouldn't be able to claim if anything happens. Because of that, they'd rather have a lower sum assured but lifetime coverage.
Secondly, they feel that the premiums for the term would've been "wasted". Especially when they paid for decades. So they want something back, at least.
Lastly, with a term, it's advisable to invest the rest. But some are not willing to take any form risks or park their money anywhere else. So the whole life plan can offer a safer solution.
2) Leaving A Legacy Behind
There are several ways to create legacies to leave for your next generation(s).
One of the ways is to get a term till 99 years old. The premiums you pay for that is much higher since the probability of claiming is higher.
One downside is what if you live beyond that age?
All the premiums you've paid for will go down the drain.
That's why a whole life can be useful since it's for life. You'll have a pay out even if you live beyond 100.
3) Buying for a Child
Buying a whole life plan for a child can be a great gift.
If you've chosen the limited pay option of say 20 years, when your child grows up, you can pass the plan to him when it's already fully paid. And your child will have several options to what he wants to do with it in the future.
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, it'll be cheaper. So he doesn't need to wait till his adulthood where it's going to be much more expensive (especially when you know he would still need to get insurance.)
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 when their child is just born.
4) Have A Higher Budget
If you have a high budget or substantial money in the bank, and have no idea what to do with it.
You can allocate it to a whole life instead of a term.
Because if you're leaving your money in the bank, it's not doing anything for you anyways. In a whole life plan, the cash value inside grows. At least you're making part of your money work harder for you.
5) Bigger Concern for Critical Illness/Early Critical Illness
Critical illness, especially early critical illness occurrences are higher than death or TPD. And as you grow older, the chances of it striking are increased.
That's why the probability to claim is higher too (which explains why it's more expensive).
The thing with a term plan or a standalone early CI plan is that you'll 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 would go for a whole life with a limited premium payment option which provides lifetime coverage.
One Downside of Whole Life Plans
If you've read till here, you're probably in the whole life camp.
There's just one thing that you must know if you want to take up a policy.
And that is...
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: this serves as a discipline form of action.
Having the plan ensures that you have coverage plus some form of savings in the long term. You're able to access some savings in the future when you may need it the most.
Compare and Get The Best Whole Life Insurance
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 not, you can do a comparison of the term plans in Singapore.
If you belong to the whole life camp, then it's time to take the next step by doing a comparison of whole life plans.
Compare the best whole life plans available in Singapore.