Term Life vs Whole Life Insurance in Singapore — Which Is Better for You?

Life in Singapore isn’t cheap, so if you have dependents, it’s pretty important to get some form of life insurance to help them if anything terrible happens to you. 

Both term life and whole life insurance pay out in the same events:

Death
Terminal illness
Total permanent disability (sometimes not auto-included and requires a rider)
Critical illness (not auto-included; requires a rider)

With life insurance, you or your beneficiary would get a payout (your chosen “sum assured”) if any of those things happen. The money would help with living expenses and paying off liabilities such as your mortgage.

But should you get term life or whole life insurance in Singapore? Let’s break down the age-old debate in this article.

 

Comparison of term vs whole life insurance in Singapore

Term and whole life insurance policies are structured very differently. Here’s a brief primer on the differences:

Term life insurance
Whole life insurance

What does it cover?
Death, terminal illness, total permanent disability + (optional) critical illness

How long does it cover you?
A specific term (e.g. 5 years) or up to a specific age (e.g. age 65, 85, 99)
Up to end of life or age 99

How much does it cost?
Affordable
Much more expensive

When do you pay premiums?
Throughout the coverage term
Can pay premiums in advance (e.g. only during working years)

What if you surrender early?
Your coverage ends but there’s no payout
You can redeem the policy’s cash value

What’s the main purpose?
Protection only
Protection + potential to grow savings

Simply knowing the differences usually isn’t enough for you to make an informed decision. Here are 3 questions to ask yourself so you can find the right fit.

 

1. What kind of insurance coverage do you need?

Term life and whole life insurance generally pay out in the same events, but the key difference is in the coverage term.

Term life insurance covers a policy term of your choice. This can either be a number of years (5 years, 10 years) or up to a certain age. 

For example, you might assume that by age 65, your kids would be grown up and able to support themselves, and your home loan and any other major liabilities would be paid up. 

But you might want to consider getting longer coverage, because if you get total permanent disability (TPD) or critical illness after age 65, these can be even more financially draining than death.

Your long-term care needs might deplete your retirement savings, and then the burden might fall on your kids or spouse.

That doesn’t mean you have to go for a whole life insurance policy, though. Many term life policies actually cover up to age 85, with some going up to age 101, which is practically “whole life”. It’s worthwhile to shop around before committing.

 

2. Do the insurance premiums work for you?

Term life insurance is definitely cheaper, and it ain’t chump change either. As people with dependents have to manage their spending carefully, it’s no wonder that many of us end up picking term life insurance. 

For a 30-year-old non-smoker, a basic term life insurance plan such as the FWD Essential Life insurance can cost less than $300 a year for a sum assured of $500,000.

For the same payout, a whole life insurance policy would cost 10 to 20 times (or even more) that amount.

Here’s one more thing to consider, though: when you have to make payment.

Whole life insurance offers “limited” premium terms which basically means you pay for your policy in a matter of years (e.g. while employed) and get lifelong coverage.

Term life insurance is more like a subscription where you’d pay premiums annually. This is very flexible, but it might also be challenging as you get older and your income less secure. There’s no penalty if you’re unable to pay, but your coverage will lapse.

Note that there’s a handful of term life insurance plans offering a single premium (pay one lump sum, and you’re covered for the whole term). This solves the problem, but only if you have that kind of money on hand.

 

3. Do you need cash value from your insurance?

Finally, let’s talk about cash value, which is arguably the biggest difference between whole and term life insurance.

Term life insurance has NO cash value, meaning if nothing happens to you during the policy term, you don’t get any financial benefit or even a consolation prize. 

Whole life insurance, on the other hand, allows you to trade in your policy in exchange for a cash payout (known as surrender or cash value), if you ever need it. That’s why some people think of this policy as a nest egg.

But… why does whole life insurance have cash value in the first place?

Well, because you paid 10 to 20 times more for it than for a comparable term life insurance plan! The insurer takes that difference and invests it in funds and other instruments to generate cash value.

You can very easily apply the same principle by opting for a term life insurance and use your savings to invest in your own portfolio — a.k.a. buy term, invest the rest.

In our opinion, this strategy is a no-brainer. There are so many robo advisors and brokerages that DIY investing in Singapore has never been easier.

However, there are some people who would rather outsource the investment bit to professionals and therefore opt for whole life insurance. 

 

Term life insurance is better, but there are exceptions

Term life insurance is simple, cheap and flexible — qualities we like in our financial products. It’s not perfect, but we found that for every limitation, there is at least one solution on the market. 

For example, some term insurance plans offer near-lifelong (99 years, or practically “whole life”) coverage. And if you are worried about not being able to afford your future insurance premiums, some plans allow you to pre-pay in a single premium.

Sure, term life insurance doesn’t have cash value, but if you are willing to invest the savings on your own, you would enjoy a lot more flexibility and autonomy in growing your own nest egg.

The above are general guidelines, and you should still consider your personal life circumstances and/or speak to a financial advisor before making a decision.

There may be cases where whole life insurance might make sense. For example, some parents buy whole life insurance for their kids. That’s when premiums are rock-bottom, so it’s possible for the policy to be paid up by the time they grow up.

 

Get term life insurance quotes from MoneySmart

If you’re pretty sure you’re in the term life insurance camp, and know exactly what you want out of your life insurance, you can get a quote immediately through MoneySmart. 

Here are some good ones we like:

FWD’s term life policy, Essential Life, is a hassle-free, short-commitment term life insurance plan, renewable annually up to age 85. It’s crazy affordable, too. You can buy this directly online — no medical exam required.

Aviva is one of the most affordable on the market if you’re looking for a basic term life insurance plan. For a sum assured of $500,000, the yearly premium adds up to $136.

Want whole life security at term life prices? There’s this AIA term life insurance policy that covers up to age 101(!). It might work out to be pricier than the others but we’d hazard to say it’s still a good deal cheaper than a whole life plan.

When you submit a quote request on MoneySmart, our insurance partner PromiseLand will scour Singapore for the best life insurance options for you. So don’t worry about missing out on a better plan.

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