How does a whole life insurance plan work?

Whole Life Insurance Policy

In Singapore where major financial commitment is shared by both the husband and wife, a payout in a time of crisis makes a huge financial impact to your family

As the life assured in a Whole life insurance policy, you and your family are financially protected when an unfortunate life event occurs.

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Why choose a Whole Life insurance policy?

Whole Life insurance can provide one of the highest coverage when an insurable event such as Death, Disability, Early Critical illness, Critical illness and Terminal illness occurs. The policy accumulates cash value and can also be surrendered for cash, in the later stage of the policy owner life.

Whole Life insurance are not without its own advantages and disadvantages.

The advantages of a whole life policy

Whole life policy ensures that the premium stays the same throughout the payment period, eliminating the risk of a premium hike. Unlike a Term Insurance, premium does not increase as the policyholder gets older.

Whole Life insurance policy also accumulates cash value, which can be surrender for cash during retirement or when the need for coverage decreases.

Related article: Term life vs Whole life (Financial cost and benefits analysis)

The disadvantages of a whole life policy

Whole life product may not be suitable for short or mid-term financial goals as the cash value built up over a longer period of time. If the only purpose of the policy is to accumulate returns, regular investment plans or endowment policies may be more suitable.

Surrendering the whole life policy also terminates all intended coverage provided by the plan itself.

Read about: 3 Best Whole Life Insurance Policies in Singapore for Insurance Coverage (Updated)

Key features of Whole Life insurance policy

A whole life plan provides coverage for the entire life making it one of the best products for protection and saving. Part of the premium paid goes into investment by the insurer, ensuring cash value builds up over time.

The policy may also have riders to multiply the protection coverage offered. Some of the key terms you should understand when taking up a Whole Life insurance policy:

• Coverage Period: Up to age 99 or entire life.
• Riders: Rider may be applicable or added to provide coverage or waive premium payment when an insurable event occurs.
• Premium: The amount of payment required for the Whole Life policy. Premium stays the same throughout the payment premium.
• Premium Term: The number of years you have to pay the premium for the Whole Life policy.
• Cash Value: Consist of a cash value generated through investment returns by the insurer. Cash value varies among the investment performance of individual insurer.
• Guaranteed Cash Value: The minimum lump sum value u should receive, in the event that you choose to surrender your policy.
• Non-Guaranteed Cash Value: Additional lump sum you may receive, depending on the investment performance of the insurance company.
• Surrender Value: The cash value consisting of a guaranteed and non-guaranteed cash value. Surrendering your policy means any provided health and insurance coverage will stop.
• Death Benefit: The amount paid upon Death, usually based is on the higher of the coverage amount or accumulated cash value.
  
  

What are the Whole Life policies available?

Without preferences and in no order of ranking, here are some of the popular whole life insurance policies available in Singapore:

• FWD: FWD Life Protection
• NTUC Income: Star Secure Pro
• Singlife: Singlife Whole Life
• Prudential: PRUActive Life III
• Manulife: LifeReady Plus II
• AIA: Guaranteed Protect Plus (IV)
• Etiqa: Essential Whole Life Cover
• China Taiping: i-Secure Legacy II
• China Life: China Life Whole Life Guardian
  
  

What else should you consider?

Depending on the premium term, the break-even point for a Whole Life insurance is usually no less than 15 to 18 years. Unlike endowment policies or investment plans, there is usually no option to partially withdraw cash without financial penalties. Ensure that affordability and suitable coverage should be just as important as the future surrender value.

Your financial adviser should work out your coverage shortfall and discuss a proposal based on your financial budget, goals and objectives.

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Where can I compare the payout and benefits of Whole Life insurance plans?