Whole Life Insurance vs Term Insurance: What is it
3 October 2022 | 2-mins read
The primary reason many buy life insurance is for protection – it can provide financial back-up during emergencies when we pass on or become totally and permanently disabled1. It is often considered as an essential tool to have in your long-term financial planning. With sufficient protection, it gives you a peace of mind knowing that you and your loved ones will be well cared for should unforeseen events happen and can continue living without worrying about financial difficulties.
Types of life insurance products
When it comes to life insurance plans, there are two main types of policies available: whole life insurance and term insurance. Both offer financial security for your loved ones should you pass away while they are in effect, but they do so in different ways. To help you identify the policy that best fits your needs and budget, let’s take a look at the differences between these two types of plans and what each policy is about.
Term insurance
Term insurance provides you with protection coverage for a fixed period without any investment feature1.
Whole Life Insurance
As the name suggests, whole life insurance provides you with life-long protection. It is available as participating and non-participating policies2.
What is term insurance and is it suitable for me?
Term insurance provides pure protection as it does not have any investment feature3. It pays out only upon death or total and permanent disability within a fixed period of time. Term insurance typically has no cash value unlike whole life insurance and does not have any investment risk as no money is invested. It is suitable for those who only need protection coverage for a fixed period of time. For example, if you want to be covered until your youngest child completes university or is financially self-reliant. Although term insurance only provides coverage for a specific period of time, it may be renewable or convertible.
For instance, ManuProtect Term (II) allows you to choose between policy term of 5 or 10 years and are automatically renewable4 up to age 85, regardless of health condition.
What is whole life insurance and is it suitable for me?
On the other hand, whole life insurance provides life-long protection2. In Singapore, whole life insurance generally costs more than term insurance as part of the premium is invested to build up cash value. What this also means is that you must be prepared to commit for the long term as early termination may result in losses. Whole life insurance is available in different forms, such as participating and non-participating policies.
What is the difference between a participating and non-participating policy?
A participating5 insurance policy provides both guaranteed and non-guaranteed benefits, while a non-participating5 policy typically provides guaranteed benefits. Guaranteed benefit is the sum assured, which is paid when the policy matures, when you pass on or become totally and permanently disabled (if this benefit is provided) during the policy period. Non-guaranteed benefits may include bonuses and cash dividends, which depend on how the participating fund’s investments are performing.
For example, LifeReady Plus (II) is a regular premium participating whole life insurance plan that provides a lump sum payout should the unforeseen event of death6, terminal illness6 or total and permanent disability6 happen. It comes with the option to enhance your protection up to 5X, till age 70 or 80. In addition, you may receive any declared non-guaranteed bonuses that may help your cash value grow. It also comes with financial flexibility7 which gives you the option to convert the cash value from your policy into annual payouts, over 10 years, with an additional 5% interest.
More than just a policy
Whether it is the more cost-efficient term life, or the more comprehensive whole life policy, the importance of including life insurance in your long-term financial security plans can never be understated. Having a plan can give you the assurance of protecting those closest to you and ensure that they are taken care of no matter what happens. Interested to learn more about what life insurance is about? Find out when you should get life insurance and how to choose the right life insurance for you.
As one of the leading providers of life insurance in Singapore, Manulife has helped provide peace of mind to thousands of families. Contact us to find out about our life insurance plans today.
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Footnotes:
1. https://www.moneysense.gov.sg/articles/2018/11/understanding-life-insurance
2. https://www.moneysense.gov.sg/articles/2018/10/understanding-whole-life-insurance
3. https://www.moneysense.gov.sg/articles/2018/11/understanding-term-insurance
4. Premiums will be based on the life insured’s age at point of renewal. Not available for Level and Convertible.
5. https://www.moneysense.gov.sg/articles/2018/10/participating-versus-non-participating-policies
6. Terms and conditions apply. Please refer to respective product summaries for more information.
7. Option is only available after the enhanced protection expires at age 70 or 80, and can only be exercised once. Annual payout will result in coverage reduction and lower cash value when the policy matures. Please refer to the product summary for more details.
Important Notes
These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs.
This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.
This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors, or visit any DBS/POSB Branch before making a commitment to purchase a policy.
Information is correct as at 3 October 2022.
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