You probably recognise the importance of having life insurance protection in Singapore. If you have dependents who are reliant on your income, then you need to ensure that you have sufficient life insurance coverage to provide for their needs in the event you are no longer around.
There are two common types of life insurance policies that you can choose from.
The first is term insurance. Term insurances are policies that are in-force for a fixed duration. For example, a 30 year-old individual may buy a 20-year term policy for coverage till age 50. If nothing happens to the individual during the term period, the policy matures when he turns 50 with no payout or cash value.
The other type of life insurance you can purchase is a participating whole life insurance policy. Unlike term insurance, participating whole life insurance provides you, the policyholder, with coverage till age 100.
In addition, there is also a cash value component that provides a cash payout if policyholders surrender their policies.
Participating whole life insurance policies tend to be more expensive since you receive coverage until age 100, and because of the cash value component tied to the policies. That's why you need to understand how it may work for you before buying it.
What does "Participating" Policies Mean?
Participating insurance policies are policies that provide both guaranteed and non-guaranteed returns. Policyholders are allowed to participate in the share of profits of the insurer's participating fund. The performance of the fund provides the non-guaranteed returns of the insurance policy.
There is also a guaranteed return portion for participating policies. This is typically known as the sum assured. Guaranteed by the insurer, the sum assured will be paid out, in addition to any non-guaranteed returns, in the event of an insured event (i.e. death) occurring.
Life-long coverage:
Unlike term insurance, whole life insurance provides coverage till age 100. Unless policyholders surrender their policies, coverage will continue to remain until policyholders turn 100 or an insured event occurs, whichever comes first.
Limited pay period:
Though coverage is for life, there is a limited pay period for policyholders. Most whole life insurance policies will allow policyholders to choose the payment period that they prefer. Once all the premiums have been paid, coverage will continue till age 100.
Typical payment periods range from 10 to 20 years from the time you purchase the policy. This makes sense as you are not expected to continue paying for this policy decades after your retirement.
Death benefit versus surrender value
When policyholders buy a participating whole life insurance policy, there are two ways that payouts will be made to policyholders.
1. Death benefit:
The first is through the death benefit payout. This happens when the policyholder passes on. When that happens, the legal representatives for the policyholder can submit the insurance claim.
The death benefit payout will include the sum assured plus any non-guaranteed returns that have been accumulated in the policy.
2. Surrender value:
The second way a payout is made is when a policyholder surrenders his insurance policy. If a policyholder feels he no longer needs the coverage, he can surrender the policy. He will receive the cash value of the policy at the point of the policy being surrendered.
Do note that surrendering a life insurance policy would give policyholders a lower payout compared to the death benefit payout at the same point in time.
Multiplier effect:
Since life insurance tends to be more important during stages in life when you are working and providing for your family, insurers may offer a multiplier that allows you to increase your sum assured for a period of time. For example, the AIA Guaranteed Protect Plus (IV) allows you to increase your coverage by 2X, 3X and even 5X for extra protection, up to the age of 65 or 75.
Choose the type of whole life insurance policy that you need
When you buy a participating whole life insurance policy, you need to ensure that the policy that you buy provides the coverage that you need. As its name suggests, a participating whole life insurance policy is indeed a life insurance policy for life. You do not want to buy a policy today, only to realise that it doesn't suit your needs in the future.
AIA Guaranteed Protect Plus (IV) not only provides you with guaranteed coverage till age 100, but also allows you to customise your level of coverage through its unique multiplier feature. You can also make your payments in either 12 or 20 years, depending on your personal preference and budget.
The policy also offers additional add-ons such as its critical illness protection. AIA Vitality members can also earn for themselves additional coverage for the plan when they make healthier choices in their lives.
