Not everybody needs life insurance, but if you do not wish to leave the weight of your outstanding bills, mortgages and other financial liabilities on your family in the event of your death or permanent disability, then life insurance could be the answer for you. There are two main types of life insurance – term and whole life. The main differences between the two are:
1) How long your policy will cover you.
2) The compensation you receive if you do not make a claim by the end of the policy life.
3) Premium payment term. Term is always pay-as-you-go, whereas Whole Life has the option for a limited payment term, meaning that coverage may last for a period much longer than you were paying premiums for.
Term life insurance is a protection-only insurance product. It’s the most straightforward and most affordable life insurance product, generally being more affordable than whole life insurance because you’re only insured for a fixed period (usually 5-40 years). The younger and healthier you are at the point of purchase, the lower your premium tends to be.
Term life insurance will cover death and, through an added rider, total and permanent disability. In terms of what is defined as a disability, this will vary between products and insurers. Typical use cases:
Your premium will remain constant during the term but may change when renewed, reinstated or converted. Note that if you haven’t made a claim at the end of the term, you won’t receive any of the money you paid in premiums back.
Your term life insurance can either be fixed or decreasing coverage.
This type of term life insurance will pay out if you die during the term of coverage (and will not pay out if you die outside the term). The payments are fixed (unless you alter your policy)! The payout is also fixed (unless you change your policy)!
30-year-old Lee wants to protect his family in the unfortunate event of his early death, so he takes out a $500,000 10-year term life insurance policy with a $50 per month premium. If Lee were to die within the 10-year term, his beneficiaries would receive a policy payout of $500,000. However, they would receive nothing if Lee were to die after the 10-year term is up. Suppose Lee reaches 40 and decides to renew his term life policy. In that case, he should expect to pay higher premiums than when he was 30 (as he is now closer to the average life expectancy). Suppose Lee were to have been diagnosed with a terminal illness within that original 10-year term. In that case, he is unlikely to be eligible for renewal. If this is something that you wish to avoid in your term life policy, look out for a policy with guaranteed re-insurability (without proof required).
In Singapore, this is referred to as GIO: Guaranteed Insurability Option. If it exists for your chosen policy, there will be a clause for this in your policy documents.
The significant difference between decreasing and fixed term life insurance is that the level of insurance decreases over time with the decreasing term life insurance. Its most popular use case is for a repayment mortgage, as insurance will decrease as the debt goes down. Your policy will aim to pay off your outstanding mortgage upon death, but it is not guaranteed. Your insurance policy should be adjusted in line with any changes to your mortgage. Like with fixed term life insurance, your payments will remain the same throughout your policy. It’s also typically cheaper than fixed term life insurance. Some suggest using it to compensate for lost career earnings if you pass away before retirement (a reducing figure as you approach that age if you think about it).
Definition of a rider = additional benefit added to an insurance policy (usually at a cost)
Yes, you can! As to which riders can be attached, this will vary from policy to policy.
The Dependants Protection Scheme is an optional term insurance plan covering CPF members for a maximum payout amount of $70,000. The scheme covers CPF members and families with funds to see them through the first few years after the death of an insured member. Coverage of the scheme is worldwide, and an annual premium will be automatically deducted from your CPF account.
TERM LIFE INSURANCE. COMPLETED. ✅
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