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Why would one prefer term life insurance as compared to whole life insurance?

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    Elijah Lee

    Elijah Lee

    10 Jun 2020

    Level 17·Independent Financial Advisor at Phillip Securities (Jurong East)

    Hi Alvianto,

    I'd take term insurance if it's more cost efficient than whole life.

    This is usually the case when you're talking about death/TPD coverage, for which term insurance is by far the cheapest solution.

    Think about it, if you are 25 and you take a 35 year term insurance policy till 60, the chances of you dying or getting TPD are very low. Hence the premiums should be low since the probability is low.

    If you take a whole life, the probability of you dying is 100%. It's not even 'high'. It's 100% guaranteed that you'll die. Thus, the payout is guaranteed to occur, and the premiums would be high for such an event.

    However, fact is, do you really need to leave behind money when you die? Probably when you have dependents or a mortgage or need to support your parents. But when you retire? Probably not. No one is dependent on you when you retire, instead you might be the one who is dependent on others. Thus, there is no need for death/TPD cover when you are retired, and hence a term plan makes more sense.

    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. 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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      Hey there!

      I won't use the word "prefer" because everyone have very different needs and there are still a sizeable amount of people who opt for life insurance. You might mean why term is advised often. The reason is because insurance is just a first step to financial planning. The second step is wealth accumulation, which means money has to made to work for you, not just you working for your money. This leaves the option to invest.

      Term insurance is of course, cheaper and some can be converted to life insurance at some point without medical underwriting. The savings in premiums is often used to invest; hence the term "Buy Term, Invest the Rest."

      The other side, of course, is that not everyone is keen to invest. They may not have the risk tolerance or time horizon for it. Life insurance at least offers a sum of money at some point (usually at retirement age), dependent on the participating fund performance of the insurer. For some people, that's something.

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

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        Tan Li Xing

        Tan Li Xing

        11 Jun 2020

        Level 9·Financial Consultant at Prudential Assurance Company (Singapore)

        Hi Alvianto,

        I think the main reason why people prefer term as compared to whole life (WL) is mainl...

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