Life Insurance

Introducing Whole Life Insurance In Singapore

Whole life insurance appeals to some people as it combines investment and coverage. However, can it be used as an investment tool? Why would life insurance pay dividends? How is its premium different from that of other life insurance? This step-by-step guide will help you understand what whole life insurance is and how it works!
Author Bowtie Team
Date 2022-08-19
Updated on 2022-08-19
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​​What is whole life insurance?How does whole life insurance work?The premium of whole life insurancePros and cons of whole life insuranceWho may consider whole life insurance?If I want to buy life insurance, are there any other choices?The difference between term life insurance and whole life insurance
Whole Life Insurance

​​What is whole life insurance?

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.

How does whole life insurance work?

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.

The premium of whole life insurance

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

Pros and cons of whole life insurance

Pros

The attractiveness of whole life insurance:

  • The premium would remain unchanged during the payment period. As a result, the insured does not need to worry about any increase in premiums or additional costs due to getting older or health decline.
  • In addition, whole life insurance has an investment component. The insurance company would invest on behalf of the insured, and the profit gained would turn into accumulated profit on a yearly basis. Therefore, buying whole life insurance seems to be a long-term investment strategy for most insureds.

Cons

  • Once you have applied for whole life insurance, you need to keep contributing until the payment period ends. If you wish to terminate the policy earlier, you cannot get the guaranteed returns or dividends if the surrender value is lower than the premiums paid into the policy. It could cause a loss and lower the flexibility of capital movement.
  • Besides, the premium is relatively high as whole life insurance involves both investment and coverage. The coverage is relatively lower than that of term life insurance given the same premium. Therefore, it might not be the best option for those who are seeking more coverage.

Who may consider whole life insurance?

If you meet the following conditions, you can consider whole life insurance:

  1. You can afford a higher premium and would not terminate the contract before the payment period ends
  2. You would like to withdraw money from your insurance account in times of need
  3. You are not familiar with investment and are looking for a stable return
  4. You are seeking a stable premium instead of a yearly increasing premium

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.

If I want to buy life insurance, are there any other choices?

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 difference between term life insurance and whole life insurance

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
Recommended applicants
  • Low-income groups, fresh graduates
  • With financial burden, e.g. mortgage loans
  • With limited cash flow
  • Stable income 
  • Seeks return based on dividends 
  • Seeks a longer coverage period
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The above information was provided by Bowtie Team. It is for reference only. In no event shall Bowtie be liable to you or to any other party for any loss or damage whatsoever or howsoever caused directly or indirectly in connection with your access to or use of the content thereon.

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