Singaporeans have an array of options to choose from when it comes to financial planning. The bad news is that many people tend to focus on the wealth creation aspect, consequently compromising the protection element.

While creating wealth is by no means a bad thing, in the wake of lifestyle changes and moving to nuclear families, health insurance and life insurance policies are among the most essential parts of any comprehensive financial plan.

Choosing from the different types of life insurance is a crucial financial decision as it helps you protect your loved ones from uncertainties that life may present. If you purchase a policy, the benefits can help the named beneficiary replace your income and fulfill their plans in your absence.

But, do you know what type of life insurance is right for you? This post will discuss the types of life insurance available in Singapore.

Different types of life insurance policies

Life insurance is essentially a contract between an insurer and a policyholder, where the insurer promises to pay a lump sum to a designated beneficiary in the event of the insured’s death. There are so many different policies that Singaporeans looking to protect their loved ones can purchase. While it may seem complicated, when it comes down to it, there are essentially three kinds of life insurance policies.

Here are the available types of life insurance that Singaporeans can purchase:

  1. Whole life insurance

Whole life insurance, as the name suggests, is a kind of life insurance that stays in force for the entire life of the insured unless the policyholder surrenders the policy or stops paying the premiums. Typically, whole life insurance covers you up to death, but some insurance companies may only cover you up to the age of 99 or 100.

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Depending on the plan you purchase, your whole life insurance policy can pay out in the event of terminal illness, critical illness, or disability.

Notably, while whole life insurance offers coverage that doesn’t expire and accumulates cash value, it is way too expensive. In Singapore, whole life insurance policies cost about 10 times more than term insurance. This is mainly because of the length and flexibility of coverage.

  1. Term life insurance

Term life insurance is precisely what the name implies. In Singapore, term life insurance, unlike whole life insurance, covers you for a fixed period of time, often until 75 years old. Many people, especially first-time insurance buyers and fresh graduates, prefer it to other options because it is affordable.

With term life insurance policies, the insurer pays out the benefits to you or your beneficiaries when you get a terminal illness, a disability, or die when your policy is in force.

The biggest downside of term life insurance policies is that they expire. When you outlive your term life policy, the coverage ends, meaning you will not get any benefits. All you can appreciate is that the policy offered you coverage and peace of mind until an old ripe age.

Before you can buy a term life insurance policy, make sure to account for whether the life insurance needs of your dependents may change over time.

  1. Universal life insurance

This is a type of permanent insurance that offers a cash value and lifetime coverage benefits. It differs from whole life insurance in that its premiums are flexible.

Notably, universal life insurance policies are often offered to high net-worth Singaporeans. This is probably because you can change the sum assured and premiums anytime.

Why do you need Life Insurance?

The purpose of buying life insurance is similar whether you choose whole life or term life insurance. This purpose is to protect your family and yourself from a financial crisis if you get diagnosed with a health issue.

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Life insurance covers several aspects that might interfere with the well-being of your family members, or even worse, yourself. Typically, life insurance will be helpful when you get attacked by a permanent disability, a terminal illness, or when you pass away.

Having a life insurance cover ensures you get financial confidence as you press on with life. For instance, if you have young dependents and are the only one receiving a monthly salary, you may find it very necessary to get life insurance coverage.

The cover will protect your financial position in the sense that when your kin gets ill, you will not strain your account to give them treatment. Additionally, you will have your family stable financially for at least a year when you die. They can then plan on finding another source of income after they are done grieving your demise. The insurance company you buy a policy from has the mandate to pay off your beneficiaries a lump sum of the coverage you buy once you die. This lump sum is also referred to as the sum assured.

Is Whole life insurance a worthwhile investment

The argument of whether one should take a whole life or term insurance policy is heated in many insurance markets, and Singapore is not an exception. Those who stand for term insurance have their strong argument basis just like those who stand for whole life. To determine if an entire life insurance policy is worth being invested in, here are some pros and cons to help you make a sound judgment.

Pros of whole life insurance

  • Whole life covers more older adults: The average Singapore life expectancy was 82.9 years in 2017. However, many term insurance plans in Singapore are meant for individuals up to 75 years. This age limit disadvantages those people who are graced to live more than 75 years. If you buy term life insurance and get past 75 years, you will have wasted your money paying premiums because the insurance company won’t pay it back. In this case, whole life insurance becomes more reliable because it has no age limit.
  • Whole life insurance accumulates cash value over time: Whole life insurance accumulates an additional amount referred to as cash value. This amount can be used by the insured for the time they live. You can use it to pay premiums, withdraw or take a loan against it.
  • Whole life insurance is more of an investment: Buying a whole life insurance policy in Singapore can be treated as an investment. The premiums paid can be linked to a practical investment of your choice and generate more income for you. However, like any other investment, this is subject to market forces, and you may end up losing money.
Health insurance
Health insurance

Cons of whole life insurance

  • Policyholders may forego some essential current expenditures to pay premiums.
  • The coverage amount is, in most cases, less than the total premiums paid.

Conclusion

Buying a life insurance policy in Singapore can save you financially in case you get diagnosed with a health problem. Consider all types of life insurance and pick one that fits your needs best.

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