Below is a brief introduction to each one. You don’t have to know what they are. Just skip the section after the line with asterisks. The amount shown is in SGD dollars.
(You’ll see that I use many terms such as “usually” due to the different standards of each insurer. I refer to the majority of Singapore’s insurers.
LIFE INSURANCE
It covers your entire life, as the name suggests. You are “alife” (alive) as long as you don’t have any other life. pun intended), you get a payout. Depending on which company you work for, your payout can range from $10000000 to $10000000.
* Life insurance typically covers total and permanent disabilities (TPD) for those who are under 65. The payout will only be available if you are completely disabled and unable to work any longer.
* Life insurance comes with cash value. You can “sell” or surrender your policy to get cash. If you surrender your policy for the first ten years, you will lose most of your money. However, you will make a profit if you sell it. This is the difference between the amount that you have paid and what you get back. Life insurance is like an antique. The longer you keep it, the more valuable it will become.
* The policy period is the same, and you pay the same premium. You will still be charged the same price no matter how old or sick you get. It also has a cash value. Please note that not all returns can be guaranteed.
* Cons: Many people feel it is too expensive and the returns are not as good as a real investment. However, I believe this is a generalization. This is unfair. I will explain why later.
TERM INSURANCE
* It covers you life, and often total and permanent disability. However, term insurance is only good for a limited time. It could be for 5-10 years, 15-years, etc.
* There are two terms that come into play: Renewable and Convertible (R&C). This benefit should be included in most term insurance policies. Ask your agent if you have this benefit. You can renew your term insurance anytime, without any questions. No matter your age or how ill, the insurer will renew your term insurance. Convertible refers to the ability to convert your term insurance policy into a life policy at any moment, without asking questions.
* Term insurance does not have a cash value.
* The pros: It’s cheap! It is actually much cheaper than a life insurance.
* Cons: No cash value. The premium will rise based on your age group. No matter your age, you will be expected to pay the premium over the years based on the current age. For $300 per year, you can buy $100,000 coverage for term insurance at age 20, and it costs $300 each year. For the same coverage, you might pay $1000 per year at 50. The same applies if you buy at 50.
INVESTMENT LINK POLICY
This may be a bit complicated. It’s not difficult, but I will make it as easy as possible. It is insurance and investment combined. ILP is unique because you can choose how much premium you want (usually, minimum $100 per month). You decide the coverage you want based on this amount. A portion of your premium will pay for your death charges. The rest will be invested in investment funds that you choose. Let me give you an example.
* You choose to pay $100 per month for coverage of $100000 in death and TPD. Your current mortality cost for $100000 (similar to term insurance, which will increase as you age) is $10. So $100 – $10 (mortality fees – $10) (all admin, sales, and miscellaneous charges), = $80. Your $80 remaining will be invested in investment funds. You can usually choose from a wide range of investment funds. Every fund has a unique risk profile. Certain funds are more volatile, which means that prices can change or escalate rapidly. There is the possibility of losing more capital, or even twice your capital. There are also some that are stable, where fund prices are likely to remain the same or slightly increase regardless of economic conditions. You can combine both. It all depends on your risk appetite and how much you are willing to take on.
* The pros: It’s flexible! The amount of ILP premium you pay is up to you. You can choose the coverage you want. You will see a decrease in returns if you have more coverage.
* Cons: The total returns of ILP are not guaranteed. However, the projected return rates for ILP are based upon 5% and 9 % per year while life insurance is 3.25% to 5.25% each year. You would expect ILP to offer higher returns for a lower premium and greater coverage if you only look at the numbers. Let me emphasize again that these are only projected rates of return. They cannot be guaranteed.
Which type of insurance policy is best for you? It all depends on who you are.
You have the money, but are not experienced with investing. I suggest you get life insurance. Some people believe that it is better to buy term insurance than invest the money. Term insurance is affordable at 20. Still relatively affordable at 30. 40? 40? 60? It is expensive. If you buy life insurance before age 20, the cost of your policy will be much lower. Worse, all term insurance is only available until age 75. Thereafter? Who will pay your last expenses? Do you want to leave a lasting legacy for your children and grandchildren?
Term insurance is a good option if you don’t have the funds. Although you can get lots of coverage at a low cost, it does not have any cash value. This is a great option for those with a limited budget but who still need wealth protection.
ILP is for you if you have some knowledge about investment and are open to investing. Your financial services consultant, aka. Your financial services consultant aka. your insurance agent should clearly explain your ILP and ensure that you fully understand what you are receiving. Remember that ILP’s rate of return is higher than life insurance. Investments can be both profitable and risky. ILP is not for you if you are unable to take the risk of losing very little, if any at all, your capital.
Is life insurance worth the cost if you’re in your 40s or 50s? . My experience is that term insurance is better than life insurance. Buying life insurance at 40 or above can be 5 times more expensive than buying term insurance. It is not worth the cost, considering that you will have to pay for at least 20-30 years. Compare the two plans. Don’t just focus on the premium you are paying now. Consider the total amount that you will be paying over the next 10 years.