Haris Ashley
Term insurance is a type of life insurance that provides coverage for a fixed period of time. It is a simple and affordable way to protect your loved ones in the event of your death, total and permanent disability, terminal illness, or critical illness (optional). In Singapore, term insurance plans are available with fixed or decreasing coverage, with premiums ranging from S$18.67 to S$34.12 monthly for S$500,000 assured over 20 years. Compared to whole life insurance, term insurance plans have lower premiums, making them suitable for young working adults, new parents, or homeowners with higher financial commitments and loans.
What You'll Learn
Term insurance vs. whole life insurance
Term life insurance and whole life insurance are two of the most common types of life insurance. While both types of insurance offer a death benefit, there are some key differences between the two.
Term Life Insurance
Term life insurance is a straightforward insurance option that covers the policyholder for a specific term, usually between 10 and 30 years. If the policyholder passes away during the specified period, the beneficiary will receive a payout. Term life insurance tends to be cheaper than whole life insurance and does not accrue any cash value. It is also generally easier to understand than whole life insurance. However, a potential drawback is that if the policyholder outlives the term, their coverage will end and they will not receive any benefits.
Whole Life Insurance
Whole life insurance, on the other hand, provides coverage for the policyholder's entire life. It tends to be more expensive than term life insurance due to its investment component. Whole life insurance policies have a cash value that grows tax-free over time and can be withdrawn or borrowed against. The premiums for whole life insurance remain the same throughout the policyholder's life, and the death benefit is guaranteed. However, if the policyholder takes out a loan against the cash value and does not repay it, the death benefit will be reduced accordingly.
Choosing Between Term and Whole Life Insurance
The choice between term and whole life insurance depends on individual needs and financial circumstances. Term life insurance is generally sufficient for most people, especially those who only need coverage for a specific period, such as while they have financial dependents or a mortgage. Whole life insurance may be preferable for those who want lifelong coverage and the ability to build cash value. Additionally, whole life insurance can be useful for those with lifelong dependents, such as children with special needs, as it ensures that the death benefit will be paid out regardless of when the policyholder passes away.
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When to buy term insurance
Term insurance is a form of life insurance that provides coverage for a fixed period of time, usually until the policyholder turns 75 years old. It is often chosen as a more affordable alternative to whole life insurance, as it offers lower premiums and is suitable for those with higher financial burdens and loans.
- Dependents and Family Commitments: Term insurance is commonly purchased to protect dependents and loved ones. If you have financial dependents, such as children or elderly parents, it is essential to ensure they are financially protected in the event of your death, terminal illness, or total and permanent disability. Consider the number of years until your dependents become financially independent, such as completing their education or finding stable employment.
- Loans and Financial Commitments: Evaluate your financial commitments, such as mortgage, renovation, car, or personal loans. Term insurance can help cover these expenses, ensuring your loved ones are not burdened with debt.
- Age and Health: The cost of term insurance premiums increases with age, as health tends to deteriorate over time. Buying term insurance when you are younger and healthier locks in lower premiums for the duration of the policy term.
- Affordability: Term insurance is generally more affordable than whole life insurance, making it a cost-effective option for those on a budget. If you are a young working adult, a new parent, or a new homeowner, term insurance can provide sufficient coverage without breaking the bank.
- Staggering Policies: Consider staggering your term policies to suit your changing needs over time. You can opt for higher protection during your earlier years with higher commitments and gradually decrease the coverage as your financial responsibilities lessen.
- Renewability and Convertibility: When choosing a term insurance plan, look for renewability provisions that allow you to renew the policy without undergoing underwriting again. Additionally, if you plan to switch to a permanent plan in the future, select a term policy with a convertibility feature.
- Group Term Insurance: Check if you are eligible for group term insurance, which may be offered by your employer or organisations like the Singapore Armed Forces (SAF) and NTUC Union. Group insurance plans are typically more affordable as the risk is spread across a larger group of policyholders.
- Comparison and Promotions: Shop around and compare premiums, features, and promotions from different insurers. Some insurers offer discounted premiums for larger sums assured, so it may be cost-efficient to opt for a higher coverage plan.
Remember, term insurance is intended to provide financial protection for your loved ones during the policy term. Carefully consider your personal circumstances, financial commitments, and the level of coverage required to make an informed decision about when to purchase term insurance.
How much term insurance to buy
Term insurance is a form of life insurance that provides coverage for a fixed period of time, usually until the policyholder turns 75 years old. It is generally the most affordable type of life insurance, with premiums ranging from S$18.67 to S$34.12 monthly for S$500,000 assured for 20 years.
When deciding how much term insurance to buy, there are several factors to consider:
Liabilities and Expenses
The insurance coverage should be enough to cover any outstanding loans, such as a mortgage, renovation loan, car loan, or personal loans. It should also take into account current and future expenses, including school fees, daily expenditure, and any monthly cash allowance given to parents.
Number of Dependents
The number of dependents will impact the amount of coverage needed. For example, a couple with children will require higher coverage than a single person with no dependents.
Income Replacement
Term insurance is often purchased to replace the loss of income for the family and dependents if the main breadwinner is no longer around or unable to work. The coverage should be sufficient to support the family until the children are financially independent.
Future Goals
If you have future goals, such as saving for your children's education or supporting aged parents, your term insurance coverage should take this into account.
Funeral Expenses
The insurance payout should also cover the desired funeral expenses, which can be significant.
No Over-Insurance
While it is important to have adequate coverage, there is no need to over-insure. The coverage amount should be based on your financial circumstances and future goals, not solely on the premiums.
Staggering Policies
You can consider staggering your term policies, with varying sums assured, to suit your needs. For example, you may want higher protection in your earlier years when commitments are high and lower protection in your later years.
Group Term Insurance
If you are eligible for group term insurance through your employer or organisations like the Singapore Armed Forces (SAF) and NTUC Union, this may be a more affordable option.
Compare Premiums and Promotions
Shop around for the best rates and suitable features. Compare premiums for different genders, age groups, and sum assured amounts. Also, look out for promotions and discounts offered by insurers.
Seek Expert Advice
Speak to a licensed representative or financial advisor to help you determine the appropriate amount of coverage based on your unique circumstances. They can guide you in choosing the right term insurance plan and ensuring you are not underinsured or overinsured.
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Conditions covered by term insurance
Term insurance is a form of life insurance that covers you for a fixed period of time. It is a simple and affordable product that provides a lump-sum payout to your family in the event of your death, terminal illness, or total and permanent disability. Here are the conditions covered by term insurance in Singapore:
Death
The primary purpose of term insurance is to provide financial protection to your loved ones in the event of your death. The insurance company will pay your family a lump sum to help them meet their financial needs, such as school fees, daily expenses, and mortgage payments.
Terminal Illness
Term insurance also covers you in the event of a terminal illness diagnosis. This means that you have been medically certified to be permanently disabled or given a limited time to live. The coverage for terminal illness may vary between insurance companies, but it generally provides financial support during this difficult time.
Total and Permanent Disability (TPD)
Some term insurance plans include coverage for total and permanent disability. This means that if you become permanently disabled and unable to work, the insurance policy will provide a lump-sum payout to help you and your family manage financial commitments.
Critical Illness
While not all term insurance plans include critical illness coverage as standard, some companies offer it as an optional rider. Critical illness coverage can provide financial support if you are diagnosed with a critical illness, helping you manage medical expenses and maintain your quality of life.
Riders and Add-ons
Term insurance policies may also offer additional coverage through riders or add-on plans. These can include personal accident, critical illness, or disability insurance. These riders provide extra protection and can be tailored to your specific needs, ensuring that you and your family have comprehensive financial security.
It is important to carefully review the terms and conditions, exclusions, and coverage limits of any term insurance plan before purchasing it. Additionally, seeking advice from a financial adviser or consultant can help you choose the most suitable plan for your circumstances.
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How to pay for term insurance
Term insurance is a type of life insurance that provides coverage for a fixed period of time. It is a simple and affordable way to provide your family with a financial safety net. When buying a term insurance policy, it is important to consider your payment ability and life stage. Here are some options for how to pay for term insurance:
Regular Pay
The regular pay option is the most recommended mode and it involves paying premiums monthly, quarterly, half-yearly, or yearly. This option is suitable for individuals with a steady income source who want to spread the payments out over a longer period. The premium amount is lower compared to the limited pay option, but the chances of policy lapse are higher since the premiums are payable for a more extended period.
Limited Pay
The limited pay option allows you to pay premiums for a specific duration of the policy tenure, which is shorter than the policy term. This option is suitable for individuals who are unsure about paying premiums long into the future or who have unpredictable incomes. The premium amount is higher compared to the regular pay option, but the chances of policy lapse are lower since the premiums are payable only for a specific period.
Single Pay
The single pay option allows you to pay the entire premium amount in one go when you buy the plan. This option is suitable for individuals who want to minimize the risk of policy lapse due to non-payment over the policy tenure. The premium amount is typically higher with this option.
When choosing between these options, it is important to consider your financial situation and goals. Additionally, you can set up a recurring payment on your credit card or through GIRO from your bank account. You can also pay your premiums directly through AXS physical stations, their website, or mobile app, or through your bank's "Pay Bills" section.
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Frequently asked questions
Term insurance is a life insurance policy that provides coverage for a fixed period of time. It is a simple and affordable product that pays out a lump sum upon death or in the case of total and permanent disability.
Term insurance covers you for a fixed period, usually until you reach 75 years old. Whole life insurance, on the other hand, covers you for your entire life, often until 99 or 100 years old, or until death. Whole life insurance premiums are usually higher, and the plan builds up cash value over time, whereas term insurance premiums are lower and the plan has no cash value.
Term insurance covers death, total and permanent disability, and sometimes major illnesses. It is designed to provide financial support for your loved ones in the event of your death or if you are unable to work due to disability or illness.
Term insurance premiums in Singapore range from S$15.40 to S$34.12 per month for S$500,000 of coverage over 20 years. The cost depends on factors such as your age, gender, and whether you smoke.
