Life Insurance Vs Term Insurance – Is Whole or Term Life Insurance Best for You?

Life insurance policies come in two key forms – whole life insurance policies and term life insurance plans. The main differences between the two ultimately come down to how much it costs to pay premiums and how long you want your life insurance policy to last for.

Purchasing life insurance premiums is an absolutely essential part of planning for yours and your family’s financial security in the future. Life policies will pay out a death benefit to your family in the event of your death and may also cover you in the event of critical illness, permanent disability and other medical conditions.

However, you’ll need to decide whether you’d be better off with a whole life insurance policy, that offers permanent coverage over the course of your life but at a cost, or a term life insurance plan, which will be much more affordable but only cover you for a specific period.

Term Vs Whole Life Insurance – An Overview

Whole life insurance typically has higher premiums, but provides lifelong coverage with a guaranteed payout amount and cash value accumulation. It’s suitable for Singaporeans seeking protection and savings potential. 

In contrast, term life insurance has lower annual premiums and coverage for a fixed period only. It’s suitable for those who want to afford coverage more comfortably but without cash value accumulation.

The table below runs through what kind of life cover, costs, and cash value you can expect from both kinds of life insurance policies.

Reputable insurance companies in Singapore offering both whole life and term life insurance products include NTUC Income, Great Eastern Life, AIA Singapore, Prudential Singapore, and Manulife Singapore. 

Read more below to determine which type of insurance, whole life or term life, might be the best fit for you.

Whole Life Insurance

Whether you live until 75 or 105, a whole life insurance plan is a life insurance policy that will last for your whole life. You’ll usually pay over the course of a fixed payment duration and benefit from a cash value component that enables you to surrender your policy for cash if you wish. That said, there are lots of different whole life insurance options to choose from and you’ll pay a lot more than you would for a term insurance plan.

1. Types of Whole Life Insurance Policies

• Protection and savings plans – offering life cover and savings options
• Endowment plan – offering savings with limited protection
• Investment linked plan – offering investment returns with limited protection

2. Features and Benefits of Whole Life Insurance

Whole life insurances plans offer a bunch of great benefits to policyholders, such as:

• You’ll have a lifelong policy and can use your death benefit as an inheritance for your heirs.
• Your whole life insurance plan can fund a trust to provide care for children or dependents with a total permanent disability.
• The cash value component of your whole life insurance plan is guaranteed.

3. Whole Life Insurance Pros

• Lifetime coverage
• Only pay during a specified number of years
• Cash value / savings component potential

4. Whole Life Insurance Cons

• More expensive than term life plans
• Lots of complex different options available
• Cash value and payouts may be calculated in a confusing way

Term Life Insurance

A term insurance policy is the most straightforward and clear-cut of all life insurance options. You’ll get pure coverage and a sum assured in the event of death, total and permanent disability, and critical illness. Term insurance plans are usually cheaper than whole life insurance plans but will be limited to only providing coverage for the specific period you are paying for.

1. Term Life Insurance Policy Types

• Term insurance plans – offering life cover over a set period

2. Features and Benefits of Term Life Insurance

Term insurance plans offering the following fantastic benefits to Singaporeans:

• Simple protection for 5-30 years
• The ability to pay premiums at lower rates
• Coverage for premature death only (i.e., if you die during your policy early)

3. Term Life Insurance Pros

• Cheaper than whole life insurance policies
• Easy to compare and buy
• Only pay for what you really need

4. Term Life Insurance Cons

• You won’t get full lifetime coverage
• No cash value / savings component
• You may need to renew your cover when it expires

Which Type of Life Insurance Policy is Right for You?

When deciding which type of life policy is the best fit for you, it’s important to consider each of the following factors very carefully:

1. Insurance Policy Tenure

A whole life plan offers you permanent life insurance over the course of your entire life, whereas a term life plan will only offer life protection for a pre-agreed tenure of between 10 and 35 years.

2. Insurance Coverage

Most term life plans will cover premature death only up until your coverage ends, whereas a whole life plan will offer you much more flexibility and benefits.

3. The Ability to Surrender Your Policy

While a term life plan will not have a surrender value, whole life plans attain a paid-up value after a certain number of years and can then be surrendered for a lump sum payout if you wish.

4. Affordability

Term insurance is generally much more affordable and easier to shop around for than whole life insurance products. This is because of the more basic and limited nature of a term life plan.

5. Maturity Benefit

A maturity benefit is only available with whole life insurance plans. Most term insurance plans generally won’t make a maturity benefit payable to you.

Whole Life vs Term Insurance Case Study

Still unsure whether term life or whole life insurance plan is right for you? Let’s consider the example of a 65-year-old Singaporean with a family made up of two children who suffer from disabilities. 

In this scenario, a whole life plan would enable them to fund a trust to provide for their children in the event of a death at age 92, while a term life plan would not offer this kind of benefit – and may not pay out at all if the insurance policy’s tenure expires before they pass away.

Conversely, if that policyholder were to take out a 20-year term life plan and die at age 84, they’d have paid a much smaller overall amount over the course of their policy, and their dependents would still receive a death benefit. 

Ultimately, term life policies are always the most affordable option but predicting the “term” you are likely to live for isn’t an easy thing to do, and whole life plans offer much more flexibility both coverage-wise and financially-speaking.

Summary:

Final Thoughts

The two key types of life insurance policy available in Singapore are very different from each other and you should think carefully about your unique needs and lifetime goals when deciding which is right to buy for you. Keep in mind that:

• Whole life insurance is generally more expensive but offers a cash value benefit and will last for your whole life. Conversely, term life plans are cheaper but offer protection-only cover and may need to be renewed once they expire.
• Term life insurance is generally the better option for cost-conscious Singaporeans who want simple, basic coverage. Whole life insurance is a better fit for those looking for lifelong coverage and the potential to use their policy as savings.
• Important decisions regarding financial security and future savings should be taken very seriously, so you should speak to a financial advisor if you are unsure which policy is best for you. It’s also a good idea to compare the market widely for the best products currently available.

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