25 Jul 2020
I have been reading about insurance for the past few weeks. Besides buy term invest the rest, what are the benefits of owning both a term and whole life policy?
I have been reading about insurance for the past few weeks, besides buy term invest the rest, what are the benefits of owning both a term life and whole life policy?
I am currently a student age 24 and have a whole life (PruLife Multiplier Flex 70 3X - premium ends 2038) that my parents signed up for me 2yrs ago, no other insurances yet.
A whole life plan such as PruLife Multiplier Flex will provide you with coverage for Whole of Life, as the name suggests. Your premiums however, won't be payable forever. This is usually cost effective to cover Critical Illnesses. So once you are done with the premiums, you have coverage without having to worry about keeping the plan going.
Term plans are very useful to plug temporary gaps. For example, if you have a mortgage or dependents. Your dependents will grow up and become financially independent. Your mortgage will get paid off. But before that happens, you may have additional coverage needs. A term plan can help bridge this gap.
As a student, presumbly you won't be having any dependents and neither do you have a mortgage yet. You won't need Death or TPD cover till then, but you will need CI cover eventually when you start work. Having a Whole of Life CI plan to start yourself off is a good thing.
The benefits will depend largely on your objectives and budget.
For starters, do keep the WL plan as it provides whole life coverage till age 100 so you've got that sorted out for now.
In general, a term plan is great for providing high coverage at relatively affordable premiums for a period of time. This is to cover your essential working years. Its often used to hedge against a liability so that there is coverage in the unfortunate event of your passing and to prevent unnecessary financial stress for your partner if you're looking towards marriage.
You get to save quite a bit if you get the term plan, of course. The reason BITR is usually encouraged during the early years is because you can afford a more aggressive form of investing when you're younger. So this allows you to capitalize on opportunities then.
WL plans are a 3-in-1 solution (provided that you have CI riders) with whole life coverage. You'll have to note that even with your CI rider, it's highly likely that it's an Accelerating (simply, it'll reduce your death benefit based on how much is paid out). That means if CI strikes, you may potentially lose your death benefit then.
If you opt for a limited premium payment for WL plan of say, 12 years, at some point in your late 40s, your investment objectives may have to be tweaked a little because you'll be at the age to prepare for retirement then. Thats where you'll be opting for more stable forms of income/investments. That may be a form of opportunity cost as well.
There are different schools of thoughts. Sometimes, it may not even be an either-or situation. Its just a matter of which do you get first eg. buy term or WL first. But since you've already got a WL plan, you might want to get term since you ultimately will need a hedge for your liabilities.
And do look our for your CI coverage too. All the best!
Financial planning is an integral part of life. You can reach me here to find out more.
Keep it. Get a term to fill in any voids you might have.
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