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May 2022

Term life or whole life insurance: Considerations for the most suitable insurance plan for you

Understanding the differences between term life insurance and whole life insurance help you make an informed decision on the most suitable plan.

Published 06/05/2022 | Last Updated 43 days ago

Term life or whole life insurance: Considerations for the most suitable insurance plan for you

When it comes to deciding how insurance can meet your protection needs to support unforeseen life events, most will start with the commonly known whole life insurance and term life insurance plans.

 

While both can provide protection against death, total and permanent disability, terminal illness or critical illness, they differ in various aspects. Understanding the differences would thus help you make an informed decision on the most suitable plan.

 

Here’s a quick overview of the two life insurance plans:

 

 

Whole life insurance plan

Term life insurance plan

Purpose

Protection + Savings

Protection

Coverage term

Lifetime

Choice of coverage spanning over a specific term period or up to a specific age

Cost

Costs more as the coverage term is  longer plus there are savings and investment features

More affordable as the coverage term is shorter and does not have savings element and investment features

Premium payment term

Over a lifetime or fixed number of years

 

Over the coverage period or fixed number of years

 

Cash value  

Coverage ends at point of surrender. There may be cash value when you surrender the policy

Coverage ends at point of surrender and there is no cash value when you surrender the policy

 

For both whole life insurance plans and term life insurance plans, you can also add riders for additional protection, such as coverage for critical illness and total and permanent disability. 

 

Duration of coverage

A whole life insurance plan (whole life plan) covers you for, as the name suggests, your entire lifetime.

 

On the other hand, a term life insurance plan (term life plan) covers you for a specific period of time. For example, the term of coverage may start from 6 years, or up to the age of 100.

 

If someone insured under a term life plan passes away within that set period, the beneficiaries of the plan will receive a one-time payout of the coverage, providing them the financial means for their daily needs such as funding a university education for the children or providing a stable financial pillar for the surviving spouse.

 

Premiums

The premium for a whole life plan is generally higher than a term life plan, with the same amount of coverage. This is because it provides longer coverage and builds cash value over time.

 

In comparison, premiums for a term life plan are less expensive as it does not have a savings element. For the young and healthy, this is the most cost-effective way to get high coverage at a relatively lower cost.

 

Cash value from the plan

Cash value is one of the features that differentiate the whole life plan from the term life plan, which does not provide any cash value when your coverage ends.

 

The difference in premiums between the two plans is what allows the insurer to pool premiums in a participating fund which is re-invested to generate cash value for you when you take up a whole life plan. This feature of the whole life plan allows you to enjoy protection and accumulate cash value at the same time.

 

If having such feature is important to you, one of the whole life plans you can consider is Great Eastern’s GREAT Flexi Protect Series, which offers three whole life participating plans with different coverages. It also gives you the flexibility to choose from three optional riders that provide coverage for death, total and permanent disability, terminal illness and choice of critical illness at the early and intermediate stages, and/or critical stage with additional benefits, for enhanced and multiplied coverage.

 

Why would term life plans work out for many?

Term life plans may seem to be an ideal option for most young people who just started their career and have budget constraints or young parents who typically already have a lot of financial obligations on their plate, as term life plans are a more budget-friendly and cost-effective choice than a whole life plan.

 

A term life plan also provides extra protection on top of any existing whole life plans you may have, and lets you adjust to your ever-changing life circumstances. For example, you can purchase a term life plan to increase your coverage over a particular set period within which you foresee yourself requiring extra protection, such as when you have another child on the way.

 

Over time as your financial needs in life change, such as when your children grow up, you may have different objectives for your insurance plan, or may want your policy to provide a cash value in future. Some term life plans give you the option to convert the plan to a whole life plan.  One such term life plan is Great Eastern’s GREAT Term which gives you the option to convert your term life to a whole life plan offering cash value in the future, without having to undergo further medical assessment.

 

Consider which plans work best for you

Applying for a term life plan is usually simple, and online application is usually fast, which is a great thing for young people who often juggle tight schedules between work, family and life.

 

GREAT Term allows you to boost and secure your coverage for death, terminal illness and total and permanent disability for up to S$300,000 in 10 minutes.

You may consider to secure your coverage online today! 

 

If you are looking for coverage higher than S$300,000, click here and our Financial Representative will be pleased to contact you. 

 

Other unique considerations specific to your family’s circumstances are also important. For example, if you have a loved ones living with a disability and you wish to ensure his/her financial needs are taken care of when you are not around, you can consider a whole life plan which provides you a lifetime protection against death, as opposed to term life insurance which is for a specific number of years.

 

At the end of the day, everyone’s circumstances are different, and you will have to consider your own financial means and life needs to decide what coverage is suitable for you.

 

Disclaimers:

 

This advertisement has not been reviewed by the Monetary Authority of Singapore.

 

As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. 

 

The information presented is for general information only and does not have regard to the specific investment objectives, financial situation or particular needs of any particular person.

 

As GREAT Term has no savings or investment feature, there is no cash value if the policy ends or is terminated prematurely.

 

You may wish to seek advice from a financial adviser before making a commitment to purchase this product.  If you choose not to seek advice from a financial adviser, you should consider whether this product is suitable for you.

 

These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the Life Insurance Association (LIA) or SDIC websites (www.lia.org.sg or www.sdic.org.sg). 

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