Life Insurance 101: Term Insurance
What is life insurance? They’re plans you can set in place to keep your family’s lives and finances afloat in the event that you are disabled, ill, or have passed on. Read on for the 2 common types of life insurance: Term and whole life. Brought to you in collaboration with FWD insurance.
What is Term Insurance?
Master the basics: what is life insurance, the key benefits, and the differences between the common types of life insurance – Term and whole life insurance plans.
But first, what is Life Insurance?
First things first, what is life insurance? Life insurance plans offer you and your family a lump-sum payout in case you are diagnosed as disabled, terminally ill, critically ill (an optional feature), or in the event of your death.
Wow, a S$400,000 cheque going straight into my bank account?
Before you start buying life insurance and faking your own death to become an overnight millionaire, think again. Life insurance plans are important, especially if you have family members depending on you – your spouse, eldery parents, children. The lump-sum payout will help them to stay afloat, meeting financial needs such as school fees, daily expenditure, and loans. In a nutshell, your life insurance policy provides for the family members you leave behind so they can survive in the event that you pass on.
There are 2 common types of Life Insurance
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Term vs. Whole Life Insurance
So, Term and whole life insurance both offer you the same type of coverage. The key difference between them is the number of years you are covered for. What other similarities and differences are there?
Similarities between Term and Whole Life Insurance
Intention
People who buy either a Term or whole life insurance plan both want to protect their family’s financial stability in case they’re disabled, terminally ill, or passed on.
Coverage
Both Term and whole life insurance plans offer you (or your family) a lump-sum payout in case you are diagnosed with permanent disability, terminal or critical illness, and death.
Buy online
You can now buy Term or whole life insurance plans with the prefix “Direct” online without an agent’s help. Insurers such as FWD, AIA, Aviva, AXA, and Income all offer “Direct” plans.
Differences between Term and Whole Life Insurance
Duration
A Term insurance plan only covers you for a fixed number of years (usually until age 75) while a whole life plan covers you until you’re age 99, 100, or death.
Cost
Term insurance premiums are 10X cheaper than whole life insurance premiums.
Money back
If you (fortunately!) outlive your Term insurance, your plan will end and you’ll not get any money back. Whole life insurance, however, may offer you some money back.
Want a plan that skips the need formedical screenings?
Who might Term Insurance be a good choice for?
Term vs whole life insurance? Which one suits you better? Consider the coverage, lump-sum payout, and most importantly, the premiums you’ll need to pay. At the end of the day, you shouldn’t be paying thousands in premiums only to eat instant noodles all day.
Choose Term Insurance if you are:
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How Much Insurance Coverage Do I Need?
The first thing is to understand that there is no need to over-insure even though it might sound like a good idea – especially to your spouse (don’t tempt them into poisoning you after a fight).
Here is what you need to consider
In the unfortunate event that you pass or are permanently disabled, terminally or critically ill, or have passed on:
What is the estimated amount your family would need to pay off your current mortgage
How much is your house? How much are you paying for it, and how much is your spouse paying for it? You would want to, at least, ensure that your life insurance’s payout will cover your portion of the mortgage fully.
What amount of money would at least help your spouse to handle household expenditures including school fees etc.
Look at your weekly and monthly household expenses. Include any car loans, and your child(ren)’s projected school and tuition fees. If you intend to pay for your child’s university fee, include that too.
What amount would be necessary to tide your retired parents through retirement
Are your parents prepared for retirement? Do they have any outstanding car or mortgage loans? Do they plan to travel? Are they ill and require long-term medical treatment?
How Much Does Term Insurance Cost?
Your premiums (the money you pay monthly or annually) are determined by your age, pre-existing medical conditions that you (or your immediate family members) have, the number of years you want to be covered for, and the lump-sum amount you want your family to receive at the end. Also, most insurers will require you to go for a full medical test when you apply – which will cost you S$100 to S$500. Sounds complicated? Basically, think of your premiums as instalments – if you buy an expensive two-door fridge on instalment, your monthly payments will be higher. If you buy a basic fridge to meet your family’s needs, your instalments will be more affordable.
Factors that affect Term Insurance Cost
Your age
The younger you are when you purchase your Term insurance, the cheaper your premiums will be. Likewise, the older you are, the more expensive it’ll get – and that’s because you’re more likely to fall ill and are closer to the end of your life.
Pre-existing conditions
If you have a medical history, chances are your insurance company may not offer you coverage for your pre-existing conditions (meaning they will not allow you to claim for these treatments). If they do offer coverage, it will come at a price – higher premiums.
How long you are covered for
Term insurance plans offer you coverage for a fixed period of time (aka Term). You can choose to be assured for only 5 years, 20 years, but most commonly until age 75.
Amount that you want to be covered for
How much life insurance should you be covered for? Do not just throw any fancy number. You need to do some math to ensure all your liabilities will be covered. Still not sure? A simple way is to take your annual income and multiply it by 10.
Pro Tip!
The FWD Essential Life Term insurance plan stands out only because it can be purchased by you directly online (without the help of any insurance agents), and does not require any medical screenings. Yup, a few hundred dollars saved.
Can I Buy Term Insurance Online?
Yes, you can buy your own Term insurance plan online without the help of any insurance agents. Most major insurance companies in Singapore offer “Direct Purchase Insurance (DPI)” Term or whole life insurance that you can purchase online.
How To Buy FWD Term Insurance Online
There are 2 ways to purchase insurance online in Singapore – via insurance companies’ websites, or via comparison websites aka MoneySmart (which, very often, will offer you promos and gifts). Here’s a step-by-step guide. We’ll be using the FWD Term Life Plus insurance plan on MoneySmart as an example.
Visit the Website
Click on FWD Life Insurance plan. A new window will open and you will find yourself viewing a summary of the FWD Term Life Plus policy. Read through the key features that have been simplified for you.
Get a Quote
Select “Get a Quote” on the top left hand side of the page. A new window will open and you will be prompted to answer a few questions – male or female, smoker or non-smoker, birthdate, assured sum, and NRIC.
View Your Quote
You will then see your monthly and yearly quote laid out clearly before you – these will be the premiums, or the price you will be paying for your plan.
Health Declaration
While you will not be required to go for a full health check up, you will be required to declare that you are not diagnosed with conditions such as cancer, diabetes, high blood pressure etc.
Download Policy
You will then be able to download your final policy wording to read – you will want to look at the key benefits and any exclusions (usually at the end).
Personal Details
Fill in your personal details such as your full name, NRIC, mobile number, nationality, and your residential address in Singapore. You will then be asked to submit a proof of your residence in Singapore – a simple letter addressed to you, or your mobile or utility bill will usually suffice. And you’re done!
Try MoneySmart's new Term Insurance Comparison Tool
Thinking about securing Term insurance for you and your family members? Find the best Term insurance plans online that suits your needs today.
