Term insurance life coverage is a vital product offering coverage for a specified duration, guaranteeing financial protection for your loved ones in case of your premature passing. This insurance product is highly favoured by young professionals in Singapore seeking affordable and easy-to-understand term insurance life coverage.
I will be sharing the specifics of term life insurance in Singapore, how it works, its costs, and various plans available to help you make an informed decision on which plan best suits you.
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What Is Term Life Insurance?
It is a policy that provides coverage for a specified period, usually between 10 and 30 years. If the insured person passes away within this period, the beneficiaries receive a death benefit. Unlike whole life insurance, term life insurance does not accumulate cash value and is typically more affordable.
How Term Life Insurance Works
In Singapore, it requires the insured individual to pay regular premiums to keep the policy active. If the insured person dies during the policy period, the insurance company pays a lump sum to the beneficiaries. This payout can be used to cover various expenses such as mortgage payments, children's education, and daily living costs.
Cost of Term Life Insurance in Singapore
The cost of term life insurance in Singapore depends on factors like age, health, coverage amount, and the length of the policy. In general, younger and healthier individuals can obtain lower premiums. The table below showcases the average monthly premiums for a $500,000 coverage:
Types of Term Life Insurance
There are several types of policies available in Singapore, each catering to different needs. Understanding the distinct features of each type can help you choose the right policy to meet your financial goals. To help us understand the differences between each plan, let’s imagine that John is 36 years old, does not smoke, and has no serious health problems. He is looking for a policy that best fits his current lifestyle.
Level Term or Level-Premium Policy
A level term policy maintains the same premium and death benefit throughout the policy period. I believe that this type of policy is ideal for individuals seeking stable and predictable costs.
For example, John would pay about $50 monthly for the insurance for 30 years. If he dies during this period, his loved ones will receive approximately $500,000 (the exact figures depend on the insurer and other nuances).
Key Features:
- Fixed Premiums: The premium amount remains constant throughout the duration of the policy, making it easier to budget for.
- Consistent Coverage: The death benefit does not change, providing peace of mind that your beneficiaries will receive a predetermined sum if you pass away during the term.
- Common Terms: Typically available in terms ranging from 10 to 30 years.
- Best For: Those looking for long-term coverage with predictable costs, such as parents wanting to secure their children's education and living expenses.
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Yearly Renewable Term (YRT) Policy
A YRT policy renews annually, with premiums increasing each year based on age. This option can be suitable for temporary coverage needs or for individuals anticipating significant life changes in the near future.
In this case, John may opt for a YRT policy because he expects his financial situation to change significantly in the next few years. He starts with a lower premium of $25 per month. However, each year, as he ages, his premiums increase. This flexibility allows him to adjust his coverage based on his current needs.
Key Features:
- Annual Renewal: The policy must be renewed each year, and premiums are recalculated based on the insured's current age and health status.
- Increasing Costs: Premiums start lower than those of a level term policy but increase annually, potentially becoming quite expensive over time.
- Flexibility: Provides the option to adjust coverage each year, which can be beneficial if your financial situation or coverage needs are expected to change.
- Best For: Young individuals or those needing temporary coverage for a specific temporary financial obligation, such as a small loan.
Decreasing Term Policy
A decreasing term policy features a death benefit that reduces over time. This type of policy is often used to cover liabilities that decrease over the term, such as a mortgage or other debt. Assuming that John has a mortgage that decreases over time as he makes payments, he would then choose a decreasing term policy where his death benefit starts at $500,000 and decreases in line with his mortgage balance. He pays lower premiums compared to a level term policy.
Key Features:
- Declining Coverage: The death benefit decreases at a predetermined rate, usually aligned with the amortisation schedule of a debt.
- Lower Premiums: Generally, premiums are lower compared to level term policies because the risk to the insurer decreases over time.
- Debt Coverage: Ideal for covering fiscal obligations that diminish over time, ensuring that your debts are paid off if you pass away.
- Best For: Homeowners with mortgages or individuals with large, diminishing debts who want to ensure these obligations are covered in the event of their death.
Return of Premium (ROP) Term Life Insurance
Another option to consider is the return of premium (ROP) policy, which refunds the premiums paid if the policyholder survives the term. This policy merges the advantages of term insurance with a savings component. If John wants both a protection and a savings element, he would then choose an ROP policy, where he pays higher premiums of about $70 per month. If he survives the 30-year term, he will get back all the premiums he paid, providing a form of savings.
Key Features:
- Premium Refund: If the policyholder survives the term, they receive back all or a portion of the premiums paid.
- Higher Premiums: Premiums are higher compared to standard term policies due to the added benefit of the refund feature.
- Financial Security: Offers both protection and a way to recover costs if the insurance is not utilised.
- Best For: Individuals who want the security of having a life insurance policy but also desire a form of savings or investment if they outlive the policy.
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Group Term Life Insurance
This is a type of term policy offered by employers or organisations to their employees or members. This policy provides protection at a lower cost due to the risk being spread across a larger group.
If John's employer offers a group term life insurance as part of the benefits package, he would then get basic coverage of $100,000 at a much lower premium, around $10 per month, without the need for a medical exam.
Key Features:
- Lower Costs: Premiums are generally lower than individual term policies because of the collective bargaining power of the group.
- Limited Coverage: Often provides basic protection that may need to be supplemented with additional individual policies for adequate protection.
- Simplified Underwriting: Typically involves fewer medical examinations and simpler application processes.
- Best For: Employees or members of organisations looking for affordable basic life insurance coverage.
Here is a table that I have put together to help you get a better overview of which type of policy best suits you and your family.
What to Consider Before Buying A Term Life Insurance Plan?
When choosing a term insurance plan, you will have to consider several key factors to ensure the policy aligns with your needs and offers sufficient protection for your loved ones.
Affordability & Coverage
Ensure that the premiums fit within your budget and that the coverage amount is sufficient to meet your obligations. You can evaluate the affordability and coverage of your plan by considering the following factors:
Affordability
- Premiums: evaluate the premium amounts to ensure they fit within your budget. It is crucial to choose a plan with premiums that you can comfortably pay over the policy period without causing financial strain.
- Payment Frequency: consider the payment frequency options (monthly, quarterly, annually) and choose one that best aligns with your financial situation.
Coverage
- Coverage Amount: determine the right coverage amount by assessing your obligations and future expenses. The coverage should be sufficient to support your family in maintaining their current lifestyle and meeting essential commitments.
- Duration of Coverage: select a policy term that covers the period during which your financial responsibilities are the highest, such as until your children are financially independent or your mortgage is paid off.
How Much Life Insurance Do You Need?
Determining the right amount of life insurance products involves a thorough assessment of your monetary responsibilities and future plans. Here are some key considerations:
Mortgage and Loans
Debt Repayment: Ensure that the coverage amount is enough to pay off all outstanding debts, including your mortgage, personal loans, and any other liabilities. This ensures that your family is not burdened with debt repayment in your absence.
Lifestyle
- Living Expenses: Consider the cost of maintaining your family's standard of living. This includes daily living expenses, utility bills, groceries, education costs, and healthcare. The coverage should provide a sufficient income replacement to support your family’s needs.
- Education Costs: Factor in the future educational expenses of your children, including tuition fees for school, college, or university. Adequate coverage ensures that your children can pursue their educational goals without monetary constraints.
Retirement
- Spouse’s Retirement Plans: Ensure that the coverage supports your spouse’s retirement plans. This includes contributions to retirement savings and providing a safety net to maintain their standard of living during retirement.
- Supplementing Retirement Income: If you have retirement plans that rely on your income, such as contributions to a pension fund or retirement savings, ensure that the life insurance coverage can supplement this income in your absence.
Additional Considerations
When selecting a plan, you should look beyond the basic aspects of affordability and coverage. Several additional factors can significantly impact the suitability and effectiveness of your policy.
Health and Medical History
- Pre-existing Conditions: Be aware that pre-existing medical conditions can affect your premiums and eligibility for certain policies. It is important to disclose your health history accurately during the application process.
- Medical Examinations: Some policies may require a medical examination. Policies that do not require an exam may have higher premiums or lower coverage amounts.
Policy Features
- Riders and Add-ons: Consider additional policy features such as riders that provide extra benefits. Common riders include critical illness coverage, accidental death benefits, and waiver of premium in case of disability.
- Conversion Options: Look for policies that offer conversion options, allowing you to convert your term insurance plans to a permanent policy without additional medical underwriting. This can provide long-term security as your needs change.
Company Reputation
- Financial Stability: Choose a reputable insurance company with a strong financial standing to ensure they can meet their obligations and pay out claims when needed.
- Customer Service: Evaluate the company’s customer service record, including ease of claims processing and customer support. Positive reviews and ratings from other policyholders can be a good indicator of reliable service.
Inflation
- Adjusting for Inflation: Consider the impact of inflation on your coverage amount over time. Some policies offer inflation protection riders that automatically increase the death benefit to keep pace with inflation.
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Which Is Better: Term Life Insurance or Whole Life Insurance?
Choosing between both can be challenging, as both have unique benefits tailored to different goals and needs. Here is a general comparison between both policies:
10 Example Term Insurance Policies in Singapore for Affordable Protection
Navigating the world of life insurance policies can be overwhelming, especially with the myriad of options available in Singapore. To help you make an informed decision, I have compiled a list of 10 example term insurance policy products* that offer affordable protection.
*Please note that I am not promoting any of the companies listed in the table above, and I do not receive payment for their mention in this article. All information is provided solely for reference purposes and for the convenience of readers.
Investing with Kilde - A Way to Get Guaranteed Income in Your Lifetime
Securing you and your family’s financial stability often extends beyond just obtaining the best insurance policy. If you are seeking additional methods on generating returns on your savings, you can consider investing your money. However, identifying the best investment opportunities in the current economic climate is not easy. Fortunately, companies like Kilde offer innovative alternative investment opportunities that provide guaranteed income streams, making it an excellent choice for securing your financial future. By investing with Kilde, you can diversify your portfolio and benefit from stable returns.
Kilde connects family offices, funds, and accredited investors to private credit deals in both developed and emerging markets. They offer senior secured loans from well-capitalised last-mile lending companies with strong financial health and capable management. These loans are backed by collateral, providing added security and minimising potential losses.
In 2022, Kilde's investors enjoyed an average net return of 11.6% in USD, and the platform has maintained a 0% default rate since its inception. Additionally, current deals can earn investors up to 13.5% net return each year. With Kilde, you can diversify your investments by adding high-yielding, secured private bonds that are unique from public markets and deliver fixed monthly or quarterly payouts.
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Final Thoughts on Term Life Insurance and Investing with Kilde
Term life insurance in Singapore offers various options to suit different needs and budgets, from level term policies that provide stable premiums and coverage to more flexible options like yearly renewable terms and decreasing term policies. Evaluating your fiscal responsibilities and future plans is essential in determining how much coverage you need. Additionally, considering factors such as affordability, coverage, health history, and the reputation of the insurance company will help you make an informed decision.
By combining a well-chosen term life insurance policy with strategic investments through platforms like Kilde, you can build a robust financial future for yourself and your loved ones. Take the time to assess your needs, explore your options, and make decisions that align with your overarching monetary goals.
Sources:
- https://www.dbs.com.sg/personal/insurance/protection/protection-plans/termprotect
- https://singlife.com/en/claims
- https://www.fwd.com.sg/life-insurance/term-life-plus/
- https://www.income.com.sg/solitaire/termlifesolitaire
- https://www.aia.com.sg/en/our-products/life-insurance/term-insurance/aia-secure-flexi-term
- https://www.tokiomarine.com/sg/en/life/products/personal/protect/life-insurance/tm-term-assure--ii.html
- https://www.axa.ae/en/uae-car-travel-home-insurance-v2
- https://www.manulife.com.sg/en/solutions/life/term-life-insurance/manuprotect-decreasing.html
- https://www.insurance.hsbc.com.sg/life-and-critical-illness/products/term-protector/
*KILDE PTE LTD (“Kilde”) is incorporated in Singapore (registration no. 201929587K) is licenced and regulated by the Monetary Authority Singapore and holds a Capital Markets Services Licence (CMS101016) and an Exempted Financial Advisor License under the Financial Adviser Act. The information provided in this marketing material is intended for “accredited investors” and “institutional investors” (collectively “qualified persons”) only. This marketing material, and any information in this marketing material, or any documentation that Kilde provides in relation to this marketing material is provided without any representation or any kind of warranties whatsoever (whether express or implied by law).
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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