Let’s be honest, getting insurance is not easy business with its complicated jargon. Unfortunately, life is unpredictable. So, what life insurance gives us is the assurance of knowing that our loved ones are protected no matter what happens.
This guide focuses on term life insurance – the simplest and most basic form of life insurance that provides protection coverage only.
We unpack everything you need to know about term life insurance, from what it’s about and how it differs from other types of insurance to what you should take into account when buying a term plan, ending with a comparison of the term life insurance plans available in Singapore.
Let’s get you covered – literally and figuratively.
What is Term Life Insurance?
Term insurance is a type of life insurance that offers pure protection coverage for a specified period of time. If you were to pass on or get diagnosed with a terminal illness (TI) while your policy is in force, the sum insured will be paid out to you and your loved ones as a lump sum.
Depending on your insurer, your basic plan might also cover total and permanent disability (TPD). If not, you usually have the option to add it on as a rider, together with other riders such as critical illness, early critical illness, premium waiver riders, and many more.
Term plans do not accumulate wealth, so all premiums go solely towards funding your coverage.
For the most part, the main reason for buying a term insurance plan is to ensure your loved ones are financially protected so that they can continue to enjoy their current standard of living if anything unfortunate happens to you, or if you’re unable to work.
Types of Term Life Insurance
There are many types of term plans which cater to different needs.
Level Term Insurance
The most common type of term insurance in Singapore, level term insurance has a fixed death benefit and level premiums throughout the policy’s term.
The amount paid out if something were to happen to you during the term is the same regardless of when the event occurs.
Your premium amount is determined by adding the cost of insurance (which increases with age) for your entire policy duration and then averaging it out. This average amount is the premium you have to pay, which remains constant.
Decreasing Term Insurance
Similar to its name, the coverage for a decreasing term policy decreases over time. However, premiums usually stay constant, and in some cases, might stop a few years before your policy ends.
The rationale behind purchasing decreasing term insurance is that as we get older, our liabilities tend to decrease, leading to a decrease in our insurance needs as well.
A common type of decreasing term insurance is mortgage insurance, which helps to pay off any outstanding amount on your home loan if anything happens to you.
The Home Protection Scheme by CPF Board is a mortgage insurance plan that you would automatically be enrolled in if you’re using CPF to pay your HDB loan.
But just a decreasing term plan might not be enough to cover your life insurance needs. In fact, there is a recommended level of protection coverage each individual should get, which we’ll discuss further later.
Increasing Term Insurance
These are rarely seen in Singapore, but if you’re curious, the coverage for increasing term insurance policies increases by a predetermined amount, while premiums tend to stay constant.
This type of term insurance is designed to help you protect your coverage against the effect of inflation.
Some insurers allow you to renew your policy at the end of its term without evidence of health up until a specified age. This feature is particularly useful if you need temporary coverage but are unsure of how long you need it for.
However, it’s important to note that if you exercise this feature, your premiums will be revised based on your age at renewal. As premiums tend to increase with age, this means that your premiums will increase on each renewal.
Your term policy might also come with the option to convert it into a permanent policy like whole life, endowment, or ILP, without the need to prove your health.
A plan with a convertible option might be an option if you’re looking to get a permanent policy but have difficulty funding it at the moment.
With life insurance, it is recommended that you get them when you’re younger and in the pink of health as they’re cheaper.
As you get older, the likelihood of developing health problems increases, which could increase your premiums, and you might even be unable to purchase a life insurance plan.
However, when we’re younger, getting a permanent policy might be difficult as they tend to cost more than term insurance.
If so, you can first purchase a convertible term plan, and later on, convert it into a permanent policy.
This prevents the possibility of you being denied from purchasing a policy or facing health exclusions on your policy, which could occur if you were to wait until later on, when you’re financially able, to purchase your permanent life policy.
Term Life vs Whole Life Insurance vs Protection ILPs
With so many types of life insurance products available, the complicated terms and multitude of features, understanding and selecting the right insurance product that will meet your needs is perhaps the furthest thing from a walk in the park.
Unfortunately, if you want to ensure you and your loved ones are sufficiently protected while maximising the value of the money that you’re forking out, it’s important to have a basic understanding of the products and their objectives to select the perfect plan for you.
To help you along, we’ve decoded 3 types of life insurance products below for you to make a quick comparison.
|Term Life||Whole Life Insurance||Investment-Linked Policies|
|Main Objective||Protection||Protection + wealth accumulation (mainly for your loved ones)||Protection + potential to gain investment returns|
|Coverage||Death + Total and Permanent Disability (either as basic policy or attached as an add-on rider)|
|Coverage Duration||For the policy term||Whole of Life (usually up to the age of 99)||For the policy term|
|Cash Value||None||Cash value includes guaranteed benefits (for participating and non-participating policies) and non-guaranteed bonuses (for participating1 policies only)||Cash value is based on the performance of the sub-fund that is invested in.|
|Investment Risk Born by You||None||Investment risk for non-guaranteed bonuses only||Investment risk is fully taken on by you.|
|Cost of Premiums||Cheapest||Higher than term|
|Payout at death||Sum insured only||Sum insured + accumulated cash value||(i) Higher of the sum insured or the value of units in the sub-fund; or|
(ii) Some combination of the above 2 (varies from plan to plan)
|Payout if policy is surrendered||Nothing||Cash value of guaranteed bonuses and vested bonuses (which may be lower than the policy’s death coverage)||Value of units in the sub-fund|
1 Participating policies allow you to take part in the profits of your insurer’s participating fund, while non-participating policies do not.
Some notable differences between term life insurance and whole life insurance or ILP are that the latter 2 allow you to build your wealth, tend to be more expensive for the same sum assured, and might expose you to some investment risk.
Additionally, whole life insurance and some ILPs have a policy term that covers you for life, while term life insurance usually covers until a certain age.
Compared to term and whole life policies, ILPs are riskiest due to the nature of the products they invest in.
Another important note is that with ILPs if your premiums are unable to cover the cost of insurance, they will sell your investment units to cover the cost of protection, affecting your investment returns significantly.
However, with the introduction of 101-wrappers, ILPs are gaining traction again. 101-wrappers are basically investment plans wrapped as an insurance policy.
So instead of thinking of ILPs as both an insurance and investment product, 101-wrappers (or we like to call it investment-focused ILPs), use all your premiums to invest in unit trusts.
When the policy matures, you’ll usually get the higher of your account value or 101% of your premiums paid. Technically a life insurance product, these ILPs are marketed and used as an investment option.
If you want to find out more about ILPs, check out this guide where we break down investment-linked policies in Singapore.
The objectives of ILPs are very different from that of term and whole life policies, with ILPs more suited for someone with a higher risk appetite. Therefore, in the next section, we’ll focus more on choosing between a term or whole life policy – a hotly debated topic in recent years.
Advantages of Term Life Insurance
Easy to Understand
A term plan is arguably one of the easiest plans to understand with its no-frills features. Essentially, you pay a fixed amount for a predetermined period of time in exchange for financial protection.
There are no participating and non-participating policies, no guaranteed and non-guaranteed bonuses, that whole life plans have.
Neither is there any premium allocation, bid-offer spread, premium holiday, etc., as in the case of ILPs.
As term insurance neither builds up any cash value nor provides you with any investment returns, it is much cheaper as compared to other forms of life insurance which require higher premiums to fund your wealth accumulation on top of your protection.
Term life insurance only provides protection for a fixed period, with the majority of insurers offering coverage only up to the age of 75.
Admittedly, the maximum age has been increasing with our increased life expectancy, but most insurers only offer until you’re 85.
Whole life policies cover you for much longer – most of them for your whole life, with some limiting it to 120 years only.
Premiums for life policies are calculated by taking the average of the total cost of insurance throughout the policy’s term.
Coupled with the fact that the cost of protection increases with age, whole life insurance ends up costing more than term insurance due to its longer coverage duration.
Disadvantages of Term Life Insurance
Policy expires after a certain age
As mentioned in the earlier sections, your term plan has a specified end date. Take the time to carefully consider how long you require the coverage because once it ends, you might face difficulties purchasing another life insurance plan.
One way to combat this would be to purchase a renewable term plan, but even so, most of them only cover until 85.
There are a few insurers who offer coverage up till you’re 99, with Aviva’s MyProtector Term II being the most attractive option.
No Cash Value
Term life insurance is only issued on a non-participating basis, meaning it does not accumulate any cash value.
If anything were to happen to you, the sum insured will be paid out without any cash bonuses. Additionally, if you survive until the end of your policy term and nothing unfortunate occurs, your policy expires and you will not get back any money.
Similarly, if you were to surrender your policy, you would not get back anything that you’ve paid.
There is also no automatic premium loan option as there is no cash value for your insurer to draw down from if premiums are not paid.
If your premiums are not paid by the end of the grace period – which is usually 30 or 31 days from your premium due date – your policy will terminate.
What to consider when buying Term Life Insurance?
Affordability is one of the top considerations when it comes to purchasing a term plan. After all, across the board, most term plans offer the same basic coverage.
Premiums vary based on many factors like age, gender, and whether you have any existing health conditions, so do take the time to shop around to find the most value for money plan.
If you have any existing health conditions, some insurers might charge you higher premiums, while others are more lenient. So if this is you, spend a bit more time comparing the plans available on the market.
Looking to get a high coverage plan? Keep a lookout for the discounts that some insurers provide if you get coverage above a certain amount.
Availability of Riders
Riders provide you with added assurance on top of your basic plan at a lower price as compared to getting a full product on its own.
Riders can affect your decision on which term plan you choose and might even take precedence over price, especially if you’re looking for a specific rider that would meet a certain need of yours.
While most insurers offer the standard riders for critical illness, early critical illness, and premium waivers, some insurers offer less common riders.
If you’re looking for protection for your child, but you don’t want to purchase a full-fledged protection plan, Tokio Marine’s Term Assure (II) allows you to add on a KidASsure GIO rider, which covers child-related illness and child hospitalisation benefits at a cost-effective price.
Alternatively, if you’re looking to get both term insurance and a personal accident plan, why not get them both together on the same plan? AXA’s Term Protector lets you add a personal accident rider on top of your term plan.
How much life insurance coverage should I have?
Your coverage should be able to cover your liabilities and allow your loved ones to continue living as they were if you were to pass on.
The Life Insurance Association recommends that a Singaporean working adult’s death coverage should be at least 9 times that of their annual income.
This number is just a guide and can vary greatly depending on your own personal circumstances and your income levels.
If you’re looking to calculate the exact coverage you need, here are some factors you should include in your calculations:
Your coverage should be able to pay off your loans, be it home, car, or personal, or any other loans. Ensure that you take into account the tenure of the loans as well as the repayment amounts when calculating your coverage.
What are your family’s current expenses? Not just the basic needs, but whatever is required to retain their current way of life. Are there any important life goals or milestones you expect to occur within the next 10-20 years? Will they increase your liabilities? These should all go into your calculation.
Are you supporting your parents? If so, you’ll also need to factor the amount you’re providing for them into your calculations.
If you have any existing life insurance plans, you can subtract their coverage from what you need to purchase. These existing plans can come in the form of insurance provided by your employer and term plans the government has set up for us, like the Dependents’ Protection Scheme which provides coverage of up to S$46,000, or the SAF Group Term Insurance Scheme for SAF NSmen.
How long should my coverage last?
As a rule of thumb, your policy’s term should last until your need for life insurance coverage ends. In other words, when you’ve managed to pay off your loans, your children can support themselves financially, and you’ve saved enough to tide you through any emergency.
You want to avoid a situation where your cover ends when you still need it, but you also don’t want to choose a term that is longer than necessary as it drives up the premiums you have to pay.
Some guiding questions when deciding on your policy term:
- When will I pay off my loans?
- How old are my children now? And how long more do I need to provide for them?
- How many more years do I have to provide for my elderly parents?
- When will my liquid assets exceed my liabilities?
Ability to add on coverage
As we move through our different stages of life, our financial commitments tend to increase, whether it be welcoming a new child, paying off the mortgage of a home upgrade, or paying for your child’s education.
Whenever these occur, our liabilities increase, and so should our insurance coverage.
Buying a new plan every single time would not be the most financially sound option due to the costs insurers charge to incept a new policy, such as the admin cost and underwriting cost.
But this isn’t a major cause for concern as some insurers allow you to add on coverage at major life events without having to provide evidence of health.
So look out for plans with these features if you’re looking for a plan that allows you to add on to your existing coverage.
Comparison of Term Insurance Policies in Singapore (2021)
We’ve done up a high-level comparison of the common term insurance plans available in Singapore to help you in your decision-making process.
When it comes to getting any type of insurance, keep this in mind – it should be about getting adequate coverage, for the right reasons, at the most affordable price.
Each of our “reasons” might be very different, so when choosing your term plan do ensure that you evaluate your priorities and have a clear idea of how much coverage you will need and until when.
With life insurance, be it a term or whole life, it’s advisable that you get it as early as possible as you tend to be healthier and can enjoy cheaper premiums.
We generally recommend getting term insurance over whole life insurance as mixing protection and investment can affect your returns, but there are many other considerations that should be factored in as well.
Even though term insurance is the simplest to understand, it doesn’t mean you should skimp on the research and comparison. Future you will thank you for the effort you put in now.
Don’t know where to start your research? Can’t seem to find the time to scroll through the numerous articles online? That’s what we’re here for.
We’ve comprehensively analysed the term life insurance plans available in Singapore and provide you with everything you need to know for each of them. Check out our articles below:
- Tokio Marine TM Term Assure II Review
- Manulife ManuProtect Term (II) Review
- Aviva MyProtector Term Plan II Review
- Prudential’s PRUActive Term Review
- AXA Term Protector & Term Protector Prime Review
- China Taiping i-Protect Review
If you don’t see the product you’re looking for, we are currently working on the article and will have it out soon, so do check back regularly.
At the end of the day, just doing research online has nothing on getting advice from an expert. So before you make your final decision and commit to a plan, talk to our unbiased financial advisors, who will conduct a full analysis of your financial needs and goals to recommend the right plan for you.