What are the different types of Life Insurance? What are the differences between them?

"There are 3 main types of life insurance.

Term Life Insurance

Term Life Insurance covers you for a period of time (the term), after which it will expire. It provides basic protection at an affordable price. Whole Life Insurance

Whole Life Insurance, as its name suggests, covers you for your whole life. As such, it requires a higher premium than Term Life Insurance. However, it can be an investment option as it has a cash value that can be obtained when you surrender or as a death benefit.

Investment-Linked Insurance

Insurance-Linked policies are investment plans that include life insurance coverage.

Do check out our article to understand them in greater details."​​​

Generally, life insurance coverage can be split into three life's major event,

1. Pre-Mature Death

2. Total & Permanent Disability

3. Critical Illness

Death Coverage

There are a couple of factors that we need to clarify and plan before we can establish whether there is a need for death coverage if you are single. For example, do you have any dependents? Do you have any liabiltiies?

Based on the latter example, just because you are single doesn't mean that your liabilities will be written off upon death. Therefore, there exists a need for proper estate planning to this end.

More Details:

5 Reasons why You need Life Insurance - Death Coverage

Total & Permanent Disability

Since you are alive and continues to live, there exists a need to be insured.

More Details:

5 Reasons why You need Life Insurance - Total & Permanent Disability Coverage

Critical Illness

Similar to the rationale for Total & Permanent Disability, there exists a need for you to be insured.

More Details:

5 Reasons why You need Life Insurance - Critical Illness

On the whole, these are general guidelines which may or may not work for you. Therefore, you are encouraged to conduct comprehensive financial planning. Through this process, it ensures that we are well-planned ahead in life.

Ok one final share here!

Let me define some of different types of life insurance policies, that I know, for purpose of comparison, a simplified definition (idea stolen from a book):

1. Wholelife (tranditional) = protection + surrender values (participating funds)

2. Wholelife (limited pay) = wholelife with less premium payment years

3. Wholelife (multiplier) = wholelife + term

4. Term = protection

5. ILP = term + investment (your own funds/premium)

Can u see the difference between Wholelife (traditional) and ILP?

Wholelife gets surrender values because the premiums are put into the pool of funds owned by the insurer. The insurer needs to make sure their income and sources of funds (ie premiums received) are invested to provide returns to the company plus cushion any claims from the insured. With wholelife, the insurer promised to share some of their returns from the company's investment (ie par funds) with the customers who buy wholelife = surrender values.

Generally, a term insurance policy covers you for a pre-defined period of time without any cash value. On the other hand, a whole life insurance poicy covers you for life, and the policy acquires cash value over time.

In fact, I have done a comparison and you may check out this post for more information: Term vs Whole Life Insurance Singapore

I share quality content on estate planning and financial planning here.