Types of insurance

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A. Term insurance 

Term Insurance offers customers with protection upon death over a fixed period of time known as the policy term. The premium amount is usually fixed and level throughout the policy term and the sum assured is paid by the insurer in the event the insured passes away. For term insurance, some insurers do offer an option to include a rider benefit whereby the sum assured is paid and the whole policy terminates if the insured is totally and permanently disabled over policy term.

Term insurance is for those, who want to provide insurance protection for their dependants over a specific period of time. For example, customers could be looking for insurance protection for their child and deems the cover to be no longer necessary once the child completes university or becomes financially self-reliant.

It is important to choose your policy term carefully. A period term that is too short will mean that your dependents might end up with no coverage after the term expires. Conversely, if you were to purchase Term Insurance for a period longer than required, you will need to pay higher premiums than otherwise required.

Term Insurance premiums increase with age. Therefore, it is encouraged that you purchase your term insurance plan early in life with a policy term that is in line with your requirements. The other benefit of purchasing early is that you are likely to be in good health at a younger age. This means that you will be able to obtain an insurance cover without any extra loading on your premiums, any exclusions on health conditions or possibly even risk of rejection of cover on your Term Insurance application.

When it comes to Term insurance, there is no savings and investment feature, which means that the insurer does not provide cash value if the policy ends or is terminated prematurely by either the insurer or the customer. This usually also means that the premiums for a Term Insurance plan will be much cheaper for the same sum assured than a Whole of Life or any other type of Insurance plan. See the quotes and compare the most popular term insurance in Singapore now.

B. Whole life insurance 

Whole Life Insurance will pay out a sum assured upon death of the insured. The actual policy term of a “Whole Life” plan actually varies between insurers and may not actually cover for the whole of a person’s life. For example, some insurers cover up to 100 years of age, while others can cover up to 120.

Whole Life Insurance plans are typically available to individuals in two forms, as a participating plan (meaning the plan will participate in the profits of the insurance fund the policy sits in) or as an investment-linked policies (ILPs) which we talk about in greater detail below.

Participating policies pay the death benefit, which is the basic sum assured together with any accumulated bonuses upon the death of the insured. Bonuses usually comprise of a yearly bonus and a terminal bonus that will be paid out upon the termination of the policy.

Whole Life Insurance generally costs more than term Insurance due to the fact that a portion of the premiums is invested to accumulate the cash value of the policy.

C. Endowment insurance 

Endowment insurance offers a fixed policy term for the purpose of helping customers meet their financial goals, such as paying for the kids’ education or to build up their savings. Insurers tend to provide low but steady returns on these savings products.

At the end of the policy term, Endowment policies will mature and terminate. These maturity dates are usually planned to coincide with when the maturity value of the policy will be required for a lump sum payment. For example, education fees, or a time when a large down payment could be required. Endowments usually have a policy term of 10 or 20 years.

The protection provided under these policies tends to be small, such as at 101% of total premiums paid. Hence, an endowment policy is not for the purposes of obtaining protection cover against Death.

Before you commit to an Endowment insurance policy, it is important to go through the features, risks and returns to see if you really need this policy and if you have the financial capacity to fund the premiums through to the end of the premium paying term. Endowment plans usually have very low surrender values and hence will likely become a costly exercise should you change your mind.

D. Investment-linked insurance policies (ILPs)

Investment-linked insurance policies (ILPs) are a hybrid between a life insurance and an investment product.

 The premiums paid are invested into the units an investment–linked fund(s) of the customers’ choice. Customers are usually given a choice to invest in a low, medium or high risk fund. To provide for insurance protection, parts of the units held by a customer will be sold each year to pay for the coverage. The amount of unit deducted from the holdings of a customer to cover this protection cost is known as the “cost of insurance”.

The customer is also subject to paying for other fund charges like an annual management charge or an investment spread.

Unlike Whole Life Insurance or Endowment Insurance policies, ILPs do not have a guaranteed death or surrender benefit. The value of the ILP will purely depend on the market value of the invested units. Therefore, investing in ILPs means taking on a risk that the returns are not guaranteed. There is also a risk that the units may not be enough to pay for the cost of insurance. In such an event, the insured may end up having no or little protection upon an insured event.

ILPs are for customers who are looking for more exposure to investments than what other life insurance products can offer and not for customers who need the insurance for protection.

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