Term insurance or life insurance?

Hi anon,

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I have to ask first, what are you intending to cover? Death/TPD? CI? ECI?

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Regardless of your answer, I'd take term insurance if it's more cost efficient than whole life.

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This is usually the case when you're talking about death/TPD coverage, for which term insurance is by far the cheapest solution, and also for the fact that you don't need death/TPD cover for your entire life.. This is also probably where you might have seen the 'Buy Term and Invest the Rest" statement.

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Whole Life becomes an interesting proposition when you factor in critical illness. You can look at the numbers, but right now, a whole life with critical illness/early critical illness rider has a good chance of being cheaper in total cost compared to a similar coverage term policy, with the added benefit that you retain CI cover for the rest of your life. Try adding ECI and LCI cover on a term plan and you'll be surprised at how the premium jumps. Unless you strongly believe you can achieve consistent investment returns of around 4-6% per annum (investment returns are not guaranteed) and continue this trend even in your retirement, WL will likely be a very competitive solution for you when it comes to CI/ECI

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While WL CI/ECI is mainly for income protection, you will also appreciate that the payout, being a lump sum of money, also means that you are free to utilize it for treatment such as a second opinion, TCM, experimental medication, etc, that a shield plan may not cover you for. A payout to cover such ancillary treatment monies would be helpful regardless of whether you are working or retired.

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It is probably appropriate that I also point out that I'm referring to the hybrid whole life-term, or also commonly known as a plan with multiplier/minimum benefit. Such plans combine the features of whole life, term and a limited payment plan into a single package, and most insurers would have their version of it.

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Yes, premiums might be higher by a couple of hundreds on a yearly basis, but you probably pay only 20-25 years as opposed to every single year on a term. In this case, Whole Life has a strong case going for it

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Lock in insurability as you are still young, and work with an independent financial advisor to understand all the options available to you as well as their costs. Whole Life CI plans are not created equal, some plans have features that others don't. While price is a determinant, it should not be the only factor for you to go by. As a guideline, you should not be spending more than 10% of your income on coverage.

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Of course, if you believe that you don't need CI cover in your retirement, then term might be the solution for you, but I personally believe in have a safety net in retirement and thus I have CI cover for life. However, do note that depending on when your term plan covers until, your total premiums can be significant.

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The thing is, to insure yourself regardless. The insurer's money is cheaper than your money, if you know what I mean.

As a financial planner, I usually advise a hybrid plan (i.e. some coverage using whole life and part of it using term life). This however, depends on the level of comfort for the client. These are the main differences to note:

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1) Whole Life is limited pay (only pay 15, 20, 25 years etc.) and you will be covered for life. Hence the higher premiums. Term life is like a "membership" where if you pay, you are covered and once you stop paying, you are no longer covered.

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2) Whole Life has a cash value which means when you are old and decide that you do not wish to be covered anymore, you can surrender the policy and get back the money (although it is never worth it). Term Life will terminate once it reaches your selected age and you do not get back everything.

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3) Whole Life cover generally increases in value due to it being in a participating fund (this means if you are covered for $50,000 today, it will be more than $50,000 after many years). On the other hand, term life will stay as $50,000 throughout till it expires.

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Some people are comfortable with a Whole Life because they only need to "suffer" and pay for example 20 years and covered till death while some prefer term life due to the lower premiums.

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To cover this gap, my recommendation usually is a hybrid plan. Have a Whole Life plan with a lower coverage so that premiums are not really high and then supplement your coverage with Term Life during the "important years" which is between 25 to 65 (where you have the most responsibilities like marriage, mortgage, kids etc.).

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However, it is important to work with a financial planner who can give you a more comprehensive advise based on your needs. Of course, as the other comments have mentioned, you should also invest.