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

Asked 3w ago

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

Was looking through and wondering what the differences between Term Life and Whole life?

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Hi anon,

Term Life

  • Covers you for a specific duration (I.e. the term)

  • Coverage ends after that

  • No cash value, but may have a surrender value sometimes after a certain period

  • Cost efficient to cover death/TPD

  • Premiums are generally payable for the entire duration of the plan

Whole Life

  • Covers you for whole of life (age 99/100/life)

  • If you reach the end of the period, policy matures

  • Premiums used to be payable till 85 or so, nowadays they are payable for a limit number of years only (20-25 years)

  • Has cash value/bonuses

  • Able to take policy loan if you are unble to pay the premium (after policy acquires cash value)

Over the years, premiums have come down quite a bit for both type of plans. You will usually want to look at your needs first, before deciding if a term plan or a whole life plan will be a better fit in terms of coverage, features, total cost, etc. It really depends on what you want to cover.

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Hey there!

Term plans cover for a period of time. The downside is that it doesnt have a cash value to it but in general, the price of Term plans are lower relative to Whole Life plans. For the differences in premiums, people often use it to invest or fund an endowment plan. Some term plans are convertible to Life Plans at some point so it'll be good to check the T&Cs. Depending on your life stage and age, it'll be better to get a Term plan during your essential working years (say 20s, 30s).

A whole life plan insures you for your whole life time (usually defined as age 100 but exceptions exists for different plans) and it allows you to pay for a limited period of time that allows life time coverage. It comes with a cash value to it (usually withdrawable at a later stage in life). Whole Life plans are usually more expensive than term plans. If you want a limited period of payment for a whole lifetime of coverage, you might want to opt for a whole life plan.

You might want to evaluate your budget, stage of life and needs to see which suits you best

Financial planning is an integral part of life. You can reach me here to find out more.

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"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."

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P
PillowCase
Level 5. Genius
Answered 2w ago

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.

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Sk Tan
Sk Tan
Level 3. Wonderkid
Answered 2w ago

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.

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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.

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Term covers you at a pre-determined term. The value add they give is through the efficient structuring of policies to ensure that they remain cost efficient. A 20 year term policy would be cheaper than a whole life policy with the same sum assured.

Whole life policy ensures coverage till age 100/120. This allows the plan to serve as an estate planning tool when a person dies.

At a macro level for the industry in Singapore, most would combine both term and whole life to ensure proper coverage and flexibility in their financial plan while keeping it cost efficient. The industry as a whole has evolved where they would combine both as well through the product innovations in the past 10 years to provide higher efficiency solutions as compared to the past.​​​

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