by Susan Paige
From critical illness and injuries to accidents and sudden cardiac death (SCD), multiple things can happen that could result in a person’s permanent disability or untimely demise. Such tragedies could result in tremendous anguish for the family in addition to causing financial stress. While no one can completely prevent such misfortunes from occurring, having life insurance can, at the very least, ensure that the loved ones of the insured will not worry about finances.
If you are a family breadwinner who intends to purchase a life insurance product to protect your loved ones, you may find the prospect of choosing from the many insurance products in Singapore to be quite daunting. Some plans focus solely on providing protection, while others offer more. Although you can use the CompareFIRST insurance products information portal to compare premiums and features of life policies available in the city-state, you still need to have a basic understanding of each one of these insurance types.
If you want to learn about the most common types of life insurance products in Singapore and how each of them works, read on. The discussion points below will help you identify the insurance product most beneficial to your situation and needs.
Term insurance products are the most straightforward life insurance products as these plans provide protection and nothing else. If you choose this plan, your dependants will receive a lump sum payout when you become permanently disabled, suffer from a terminal illness, or pass away unexpectedly.
As the word suggests, term insurance provides protection only for a fixed term that may range from five to forty years, depending on the policy you choose, instead of your whole life. Perhaps the ultimate advantage of this type of insurance is its affordability. For example, for a thirty-year-old non-smoker male, it is easy to find insurance plans with less than SGD 30 monthly premium for a twenty-year term and a sum assured of SGD 500,000.
Should you opt for a term insurance product, make sure to select the coverage term carefully. Keep in mind that you and your loved ones will no longer be protected once the insurance term expires. If you are younger, you may want to consider purchasing term insurance for a longer period because premiums tend to increase as you age. Also, it may be impossible to buy term insurance after you reach the cut-off age.
Whole Life Insurance
Unlike term insurance that only provides protection up to a specific age, whole life insurance offers protection throughout a person’s life. The latter also accumulates cash value. That means if you choose to surrender your policy in the future, you can receive a portion of your money back. Whole life insurance plans are available in various forms, such as the following:
- Participating policies. This form of whole life plans offers guaranteed and non-guaranteed returns. The guaranteed return, known as sum assured, will be paid out by the insurance company when you become permanently disabled or pass away. The non-guaranteed benefits, on the other hand, come in the form of bonuses and dividends, which are the policyholder’s share in the earnings of the insurer’s participating fund.
- Non-participating policies. This form of whole life policies provides guaranteed benefits alone. Policyholders are not eligible for any earning the insurer makes.
Because whole life insurance plans offer lifetime financial protection and cash value over time, such policies are much more expensive than term insurance. If you want to purchase a whole life plan with a lower premium, you may want to choose Direct Purchase Insurance (DPI).
DPIs are term and whole life insurance products you can purchase directly from the insurance firm without going through an intermediary. Since no commissions are paid to a financial advisor or insurance agent, premiums tend to be lower.
Endowment insurance policies are commonly promoted by insurance agents as a form of savings plan to help individuals achieve short and long term financial goals, like paying for their children’s tertiary education or buying a new house. Unlike ordinary savings, however, you cannot take back the entire sum you have deposited since a portion of the premiums will be allocated for your insurance and the rest for investment. Endowment plans usually come in the following forms:
- Participating endowment policies. Policyholders get a share of the earnings of the insurer’s participating fund in the form of bonuses and dividends. However, these benefits are not guaranteed as they depend mostly on the investment performance of the fund.
- Non-participating endowment policies. Unlike participating plans that include guaranteed and non-guaranteed benefits, non-participating policies only comprise guaranteed cash value.
Before you get too excited about the investment component of endowment policies, it is best to compare the benefits, features and risks of the insurance plan you want against other investment products available on the market. If you are solely after the investment component of the endowment plan, you better think twice. You will probably benefit more from investing your money elsewhere as the endowment plan returns are not truly rewarding as a standalone venture.
Investment-Linked Insurance Policies
Investment-linked insurance policies or ILPs are plans that combine protection and investment. The premiums you pay are allotted for paying life insurance coverage and for buying investment units in investment-linked funds.
Unlike endowment policies, wherein the insurer determines the investment strategy, you are responsible for selecting the investment units in ILP. That is why it is crucial that you fully understand the investment unit’s historical performance and potential risks. Ultimately, the success or failure of an ILP depends on your investing skill.
If you are after protection for your loved ones, you may want to look beyond ILP. Numerous insurance products offer higher coverage at a more affordable cost.
The items discussed above are the most common types of life insurance in Singapore. Be sure to consider your needs and situation and the level of protection provided by the particular insurance product you are eyeing when looking for the right plan. More importantly, read the terms and conditions carefully and do not forget to compare similar products to get the best policy possible.