Choosing insurance can feel confusing or overwhelming with so many policies to choose from, and you might face troubles finding the right one for you.
In Singapore, there are two types of life insurance – term life and whole life insurance. They are similar, yet different.
You might even wonder, “Is life insurance something I really need right now?” You might have burning questions about life insurance that you can’t find answers to easily.
To help clear your doubts and find the most suitable life insurance for you, we’ve pooled some questions related to life insurance from millennials and Gen Zs (especially first jobbers), and got experts to weigh in.
1. What’s the biggest indicator that I need life insurance?
Your dependents (and whether you have them or not) determines if you need life insurance. Dependents are people who depend on you financially. This could be your ageing parents, newborn baby, or even your stay-at-home spouse.
Of course, if you don’t have any dependents at all you might not need life insurance yet. However, it’s always wise to think about upgrading your insurance coverage to eventually include term life or whole life insurance as you progress through different life stages.
As you grow older, you might take on more responsibilities, whether it’s the folks at home getting older and depending on you more, or when you decide to settle down and have children. Even as a single person by choice, who doesn’t want any children, you might still buy your own home in the future – taking out a home loan. These are all added financial responsibilities you’ll have to account for, which makes life insurance almost a non-negotiable part of your coverage.
On the note of upgrading your life insurance, you might want to consider including riders for total permanent disability or critical illness coverage – these riders can pay out living benefits if you’re unable to work after a mishap or accident, so just keep that in mind!
2. What’s the difference between term life and whole life insurance?
Both types of life insurance policies cover the same things, namely:
- Terminal illness
- Total permanent disability
- Critical illness (depending on the policy and insurer)
But not every term life or whole life plan will always cover the same things listed above. It’s important that you always check the fine print or clarify things prior to committing to an insurance policy.
The main difference between term life and whole life insurance is the coverage period. Term life covers you only for a specific period, while whole life can cover you until you reach age 99.
Additionally, a whole life participating plan typically has a cash value component, for ‘savings’ purposes. The ‘savings’ component is pretty straightforward: the cash value of your whole life insurance plan grows year on year, based on how much the insurer’s bonus payouts are on your policy.
Having an added savings component might sound like a great deal, but just because it’s the “whole” package doesn’t mean it would make the most financial sense to you. Because of these added cash value components, your whole life premiums cost more than with a term life plan. Without that cash value, you’ll pay a cheaper premium. So, consider your current situation and decide what makes the most sense for you right now.
3. Which plan is cheaper, term life or whole life insurance?
Term life insurance is definitely the cheaper option, and it will still provide the same coverage as mentioned above. If you don’t care about having a cash value component* to your insurance coverage like whole life participating plans offer, or you prefer to simply save and invest your money independently, then term life insurance would be more suitable for you.
In other words, term life is cheaper because it’s purely about protection. Whole life is more costly because there’s the added savings component to it. And if you’d prefer your savings to be invested for long-term financial goals such as retirement, then term life would be the way to go.
*Term life insurance does not have cash value, while whole life insurance does. This means that if you terminate your term life coverage early, you won’t be getting any money back. For whole life insurance, you’ll get back a portion of your accumulated cash value if you choose to terminate your whole life coverage early.*
4. Why should I get life insurance when I’m younger? Can’t I wait till I’m older (and able to afford premiums)?
When you’re fresh out of university and taking on your first job, you may feel invincible or immune to diseases. You may even have the misconception that life insurance is for people who are much older than you are — people who are more at risk for contracting terminal illnesses.
But if the Covid-19 pandemic has taught us anything, it’s that young people are as susceptible to pandemics, terminal illnesses, and fatal accidents. Even cancer is becoming more prevalent among young adults, such as colorectal cancer. You’ll want to purchase life insurance before disaster strikes, and that means buying it as early as possible, once you’re able to afford it.
You’ll also pay less insurance premiums when you’re younger, than if you were to obtain the same coverage when you’re older.
For example, getting insurance at age 25 versus at age 35 makes a huge difference in premiums. For a life insurance plan that gives you a sum insured of $100,000, in addition to $50,000 for total permanent disability and $50,000 for critical illness, buying your insurance at 25, or 10 years earlier, could mean saving up to $4,152 in premiums.
But, it’s not always about whether something is cheaper when you’re younger. You should also consider your financial obligations and whether you have dependents before making that decision.
5. If I have a spouse, should we both get life insurance?
Yes, especially if you both have existing financial obligations like repaying home loans, or if you’re parents. That way, if something happens to either one of you, the life insurance payout can help your surviving other half with debt repayments and child-raising expenses, on top of supporting your ageing parents, if any.
If only one spouse is working and the other is staying at home, then life insurance is much more vital. Should anything happen to the working spouse, the only stream of income for the household will be affected. Struggling financially on top of emotionally after suffering the loss of your spouse is more than just being stuck between a rock and a hard place. It’s gruelling.
On the other hand, just because you’re unmarried and still dating, without any kids, doesn’t mean that life insurance isn’t crucial. Again, you need to consider other financial obligations or other dependents in your life, and make your decision from there.
And as for how much your life insurance coverage should be… As a rule of thumb, according to the Life Insurance Association Protection Gap Study 2017, one should aim to have life insurance coverage of about 9x their annual income.
6. If my parents don’t have life insurance yet, should I convince them to get it? How?
This depends on whether your parents are still working and supporting you or their other kids. If they’re retired and don’t have to work and support their kids, or even pay off any loans, and are surviving on their retirement savings to fund their lifestyle, then they may not need life insurance coverage.
On the other hand, if you’re still relying on your parents financially, or if you have younger siblings in school that do, then life insurance is a good hedge against the risk that something might happen to them, rendering them unable to provide financial support to the family.
7. How do insurance companies determine your premium?
Insurers typically consider the following factors when assessing your profile and coming up with the number for your premiums. These factors include:
- Health risks
- Employment type
- Type of coverage for riders
- Amount of coverage
- Coverage term
These factors contribute to risk (as in, the risk of you getting into a mishap, dying early, or contracting a terminal illness), which in turn influences your premium amount. This is why an older person’s premium can cost so much more than a younger person’s — because older people are riskier to insure.
Men also tend to pay higher premiums because of a lower life expectancy than women.
If you’re young, single, and working an office job in a relatively safe industry, you might find that your premiums are more affordable than other people’s, which is good news for you!
8. When should we ever think about changing our life insurance policy?
Remember what we said about progressing through different life stages, and letting that guide your decision-making where life insurance is concerned? It’s pretty much the same.
For instance, if you bought a life insurance policy as a fresh graduate entering the workforce, you might not need a huge amount of coverage since your only dependents are your ageing parents who have healthy retirement funds.
But five years have passed, and you’re married with kids on the way — twins, and your spouse has agreed to stay at home to look after them. This is probably when you ought to relook your life insurance coverage, and possibly increase the amount of coverage since you now have ageing parents, a spouse, and two kids to take care of.
TL;DR: You should increase your life insurance coverage when your financial responsibilities increase.
The earlier, the better
There are a lot of determining factors to consider when getting the most suitable life insurance coverage. But one thing is certain — it pays to kickstart your protection earlier on in life. The earlier you get a life insurance policy, the lower your insurance premiums will be. So, if you don’t want to end up paying more down the line, you should start thinking about getting that life insurance policy today.
Ready to start buying term life insurance? Check out FWD’s term insurance here !
Have more questions that need answering? Speak to our experienced consultants to clarify further.