Whole life insurance provides both life insurance coverage and returns. A portion of the premium goes towards investment. The insured can cash back at any time or keep the money in the cash value account such that it grows with interest over time. In addition, the insured/ beneficiaries could claim a lump sum upon the death of the insured/ termination of policy/ when the policy expires and coverage ends (assuming the insured turns 100).
The premium payment term for whole life insurance varies from plan to plan. It could range from 10 years to 30 years or longer. The premium is fixed during the payment term, after which the policyholder does not have to pay any extra premium. The plan would stay effective to provide lifelong insurance protection and long-term potential investment revenue to the insured.
Most people consider whole life insurance an investment tool, mainly because the policy would provide death benefit to the beneficiaries and constantly accumulate cash value.
Whole life insurance would assign a portion of the premium to different investment projects. Compound interest would significantly boost investment returns over the long term. Therefore cash value will grow sustainably, similar to the principle of long-term investing.
The calculation of cash value could be complicated, depending on the actuary’s calculation and the insurance companies’ investment portfolio. Simply speaking, after deducting the commission, guaranteed cost and operating expenses from the premium payment, and adding the returns generated by the insurance company’s investment of the remaining premium, the Insured can withdraw the final dividends at any time.
Unlike term life insurance, whole life insurance has a fixed payment period. During the period, the premium would not change once it has been determined.
Since whole life insurance has a fixed premium throughout several decades, the premium is higher than that of term life insurance. Assuming that the insured is a 30-year-old male non-smoker, below is a comparison of his term and whole life insurance premiums .
|Death Benefit||Estimated Yearly Premium|
|Term Life Insurance||S$500,000||less than S$300|
|Whole Life Insurance||S$500,000||S$3000 – $6000 or more|
The attractiveness of whole life insurance:
If you meet the following conditions, you can consider whole life insurance:
However, if you are looking for a lower cost and steady returns, instead of whole life insurance, you can consider investing in a low-risk investment product via a commission-free trading platform.
Term life insurance is a good option for those who want full coverage for their family.
Compared to whole life insurance, term life insurance offers an affordable premium as most of the premium is used for coverage purposes. Therefore, with the same premium, the insured can get higher coverage.
The insured could choose the most suitable life insurance product depending on their needs and budget:
|Term life insurance||Whole life insurance|
|Premium||More affordable, premium adjusted yearly||Higher, fixed premium|
|Sum assured||Higher||Lower coverage given the same premium|
|Coverage period||Needs to be renewed regularly||Life-long coverage (or up to age 100)|
|Saving component||No savings component or cash value||With cash value and non-guaranteed dividends|