I'm 30, currently single, with 2 dependents my parents, looking to buy whole life plan with CI for myself. Deciding between term/limited pay whole? Also, should I buy with or without ECI/TPD?

Hi Anon,

In regards to whether to do Whole Life or Term, personally I'm more pro-Whole Life because insurance coverage when it comes to death and CI should always protect one for the whole of our lifetime.

I think in regards to term being more expensive, it isn't necessarily so, actually if you buy a term insurance at your age as compared to a Whole Life, the Term might actually be cheaper, but of course a Term policy's coverage is based on how long you have decided, it could be 20 or 30 years, or even longer. Also, Insurance Premiums are affected by the age at when you make the purchase, so meaning if you buy now, the premiums are fixed at that rate through out the payment term.

TPD is usually included in policies as when one is TPD... you do need the lump sum benefit as your cost of living increases drastically. In regards to whether you should include ECI, I think it would be a good to have, as with medical advances, certain forms of ECI can actually be detected early and treated early. And usually after such treatments, recovery is very likely.

Whether to do minimal coverage, I think it would be good to follow the guideline of;

10x your annual income for death coverage

5 - 7x your annual income for CI coverage

2 - 3x your annual income for ECI coverage

But of course this is the most straight forward method. If you'd like another method, we can look into the expense method, which takes your monthly expenses and multiply them by X number of years as you need.

My suggestion is, look at a Whole Life policy with limited pay (15-20 years payment term) to cover what you need, then get a term later to further boost your coverage as term is the cheapest form of insurance with the highest possible coverage in sum assured.

Summary

Generally, you need life insurance when you have dependents to take care of, liabilities to pay off, or a legacy that you wish to leave behind. In a similar fashion, get critical illness coverage as long as you are alive since the payout is for you - to supplement the cost of living. Now, let's get into the details.

Term Insurance

Firstly, let's address your concern for term insurance. Yes, you are right to say that there exists term insurance policies in the market where the premiums are non-guaranteed and may (or likely to) increase on renewal. Hence, you will have to be careful when making this as your choice.

More Details:

What is a Term Insurance Policy?

Types of Term Insurance Policies in Singapore

How to use Term Insurance?

If you intend to save the cost of policy through a term insurance (as compared to other options), then you should use the remaining budget to grow your money. In order to do so, you can either DIY or work with an experienced consultant to create a custom wealth accumulation plan.

Since you mention that you are not confident to do so on your own, then working with a professional mentor will certainly help you to this end.

Whole Life Insurance

Otherwise, the easier solution will be a participating whole life insurance policy. Through features such as limited payment with lifetime coverage, cash value over time, it is an option that you may consider.

More Details:

What is a Participating Whole Life Insurance Singapore

When to buy Whole Life Insurance Singapore

Key things to look out for Participating Whole Life Insurance

As part of your premium goes into the insurance company's participating fund (in order to generate returns for your cash value), you need to ensure that you are not overpaying for this cash value.

Generally, we need to be comfortable with the asset allocation, expense ratio, and track records. This is simply because all these factors have a direct impact on your cash value over time.

For instance, all my clients won't pick a higher risk asset allocation when they expect to receive the same rate of returns as a lower risk asset allocation. Moreover, a high expense ratio means that the participating fund is not performing as efficiently as it should be.

More Details:

What is a Participating Fund?

Early Critical Illness

As the answer is getting long (in an attempt to give you a proper answer), I will link you to a similar question regarding the need for early critical illness coverage.

More Details: https://seedly.sg/questions/what-is-the-differe...

In my answer, I broke down the difference between early critical illness coverage and major critical illness coverage, the potential cost involved, and the crucical factor to consider when choosing the right early critical illness protection (p.s. definition for payout).

Final Thoughts

Finally, the only way to know whether you should take minimum coverage now is to conduct comprehensive financial planning. Speak with your agent or an experienced consultant who is capable to mentor and provide you with responsible advice to this end.

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