Working Adult Guide: Term Life Or Whole Life Insurance, Which Should I Get?

Hey ya! Good job on taking the first step in your personal financial planning – RESEARCH.

It’s important to note that there are many different routes to the same destination but it’s arguably best if we take the cheapest route there – and that’s why you’re here reading this article!

TL;DR – Before Choosing Between Term Life Or Whole Life Insurance

• Never lose focus on your objective – why are you buying insurance?
• Life Insurance Association Singapore suggests that coverage of 11 times your annual earnings is the most optimal, but it really is relative to your lifestyle.

“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.”

~ Jack Ma

Advantages And Disadvantages Of Term Life And Whole Life

Let’s Breakdown Life Insurance, Shall We?

• Why should I get Life insurance?
• What is Whole Life insurance?
• What is Term Life insurance?
• When should you choose Whole Life?
• When should you choose Term Life?

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Why Should I Get Life Insurance?

1. If you are the sole breadwinner of your family

This will help your spouse to sustain the current family’s lifestyle while giving him/her time to find a job.

2. If you have dependents

Meaning children that are not financially self-reliant yet, and/or parents whom you are providing for their retirement.

3. If you have liabilities

Whether it is an education loan or mortgage loan, you should get yourself insured so as to not pass your burden to your family.

4. If you want to strike the lottery…

I’m just kidding, but this was ACTUALLY something an agent told me once at a roadshow…

(Editor’s Note: The older you are, the higher the premiums will be. So you should always plan early! This applies to all life insurances.)

What Does Life Insurance Provide?

• A payout to your family in an unfortunate event of your passing
• It provides your family with a form of income-replacement to tide them over the first few years

It’s arguably the best way to provide some form of income for your family when you are no longer around.

“The best investment is the one that pays you the most when you need it the most”
~ Anonymous

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What Are Whole Life Policies?

There are 3 types of Whole Life policies:

• Participating (Par) – Pays bonuses. Upon your unfortunate demise, it pays the basic sum assured plus any bonuses accumulated.
• Non-participating (Non-par) – No bonuses but has a guaranteed, accumulated cash value. Should you, unfortunately, go before your time, only the sum assured is paid out.
• Investment-linked policies (ILP) – There are 2 types available. Upon your departure from this world:
  1) The higher of the sum assured or the value of the ILP units are paid out
  2) Both the sum assured and the value of the ILP units are paid out

Par and Non-par Whole Life Policies

Advantages of Par and Non-par Whole Life Policies

• Fixed premium duration, or in simple words: limited pay (e.g. if my premium term is 20 years, I only have to pay my premiums for 20 years)
• Covers you for life until the age of 99
• Has Cash Value. Do note that this is only available if you surrender the policy before death

Disadvantages of Par and Non-par Whole Life Policies

• Might come across as complicated for some due to their coverage multipliers

Investment-linked Policies (ILP)

Advantages of ILP

• Provides both insurance and investment
• A portion of your premiums is used to buy units of your chosen sub-fund
• Premium Term:
  – Single (Lump Sum), mainly investment into sub-funds
  – Regular term where premiums are paid on an on-going basis
• Investment performance is transparent, unlike Participating policies

Disadvantages of ILP

• Provides both insurance and investment (can be an advantage too, depending on how you look at it)
• Value of the ILP depends on the fund you have chosen to invest in
• Lots of underlying costs – one of the main reasons why people regret their ILPs

FYI: Whole Life policies tend to cost more, especially Par and ILPs, as some of your premiums are invested to build up cash value.

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What Are Term Life Policies?

“You pay, you are covered. Don’t pay, no coverage.”

Term Life policies are really straightforward: as long as you pay your premiums, you’re covered.

They’re also flexible enough to be used as a short-term solution. Meaning you can add them to your existing policies if you feel your coverage is insufficient.

Advantages of Term Life

• Choose your own time frame – 15/25/30 years or even up to age 65/100 etc.
• Straightforward, you are covered as long as you pay your premiums. Vice versa.

Disadvantages of Term Life

• No Cash Value, therefore it is cheaper

Here’re Some Term Insurance Policies That Our Government Has Graciously Set Up For Us:

1. Dependants’ Protection Scheme (DPS) – By CPF

• Sum assured of S$46,000 (maximum)
• Optional
• Automatically opted in by the Government when you turn 21 years old
• Premiums are deducted from your CPF

2. SAF Group Term Life Insurance Scheme

• Cheap and affordable
• Offered to all SAF NSmen age 55 and below and Dependants of the SAF NSmen
  (i.e. $41/month for S$1 million coverage)

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When Should You Take Up Whole Life?

• Whole Life plans are good to sufficiently cover your living expenses
• Ask yourself: Do you need to provide for your dependents for the rest of your life? Or only till they are financially self-reliant?

A Commonly Asked Question: Should I cancel my whole life insurance just to buy term insurance to replace it?

That’s actually pretty risky.

1. Your premiums might be higher if you had purchased your whole life insurance many years back because of the mortality charges. The older you are, the higher the mortality charges are.
2. You might not be insured. If you have a pre-existing condition that your whole life insurance covers, cancelling your whole life insurance will remove your coverage and getting a new term life insurance will not cover your pre-existing illness either.

However, you can purchase term insurance to complement your whole life insurance. For example, if your liabilities or your income increases during a particular life stage.

When Should You Take Up Term Life?

• You are confident that you are able to earn a higher return than the bonuses that the insurer offers you. You know the whole debate surrounding #buyterminvesttherest…
• You require additional coverage due to an increase in income
• You require additional short-term coverage due to a sudden increase in liabilities (e.g. Mortgage, Car loans)

A Commonly Asked Question posted on our Seedly Q&A: When would you recommend whole life insurance?

• To someone who has a family depending on their income. I will always recommend some of your cover be whole life especially if you’re getting Early Critical Illness Cover.

~ Hariz Arthur Maloy,  Independent Financial Advisor at Promiseland Independent

• My take is that it is not so much about the type of people but rather it is based on one’s individual needs, budget and preferences. If one’s needs is towards covering critical illness, especially for early stages, Whole Life is a more cost effective solution as compared to term.
  If we are purely looking at Death coverage, Sticking to term makes alot more sense from a financial standpoint.

~ Brandan Chen, Financial Planner at Manulife Singapore

Read More About Whole Life Insurance 

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Now that you understand the difference between Whole Life and Term Life Insurance, you should be able to better explain to your financial advisor what your needs are.

If you have more questions, we have an open community for you to get your questions answered and to hear from different perspectives!