The Differences Between Term Life Insurance and Whole Life Insurance: Which Should You Buy?

By 14th April 2019 May 14th, 2019 Finance, Insurance, Money, Policy, Premium, Singapore, Term, Whole Life
Should I buy term insurance policy or whole life insurance policy?

It is important to get yourself insured such that in the event of your death, the proceeds from the life insurance can ease the financial burdens of your surviving family members. While both term life insurance and whole insurance provide much-needed cash in the event of death, there are big differences in terms of the costs and benefits each policy offers. Here’s a quick run-down of both varieties before we go into details of each policy.

Thinking of buying a life insurance policy or not sure when to get one? Read on.

Who needs Life Insurance FAQs

Is life insurance only for people with dependants? When is a good time to buy life insurance? Let’s go through those frequently asked questions about life insurance and, the FAQs will help you decide under what circumstances you should buy life insurance.

If I do not have any dependants, should I buy Life Insurance?

Life insurance is not just to lessen the financial burden of your dependants in the event of your death. There are many circumstances where life insurance can be beneficial such as covering your own funeral expenses. Here are some guidelines for you to decide if you need life insurance:

When should I buy life insurance?

One important thing to note before purchasing life insurance is that the younger and the healthier you are, the cheaper the premiums are.

How would I know which is the correct one for me?

  1. The reason for getting life insurance (To grow wealth, to protect your assets, provide for family)
  2. Your current situation (financial, family, age)
  3. What stage of life you are in (Student, Married, Starting a business, buying a house etc.)

10 Different Situations Where Life Insurance Is Applicable

This list will help you figure out whether you need life insurance.

1. Starting a Family

When you are starting a family, you should consider getting life insurance as your rates will be cheaper now than when you are older and your children will be relying on your income.

2. Established Families

So long as you have a family that is dependant on you, you need life insurance. This is not only applicable to the working adult(s) in the family. Life insurance should also be considered for the person working in the home such as housewives. The costs of replacing someone that does domestic chores and childcare can cause a financial burden to the surviving family.

3. Single Adults

Single adults buy life insurance as they would need to pay for their own funeral costs or if they have parent(s) or other dependants they may care for financially.

For single adults, it is better to buy life insurance when they are young as the older they get, the more expensive life insurance becomes. In addition, as you get older, you are more prone to medical issues and you risk being rejected to be insured if you fail the life insurance medical exam.

Otherwise, if they have other sources of money to pay for their own funeral and has no dependants on their income, life insurance would not be necessary.

4. Home Owners & People with Mortgages or Other Debts

If you buy a house with a mortgage, having a life insurance policy that covers your mortgage debt would protect the interest and avoid having to buy extra mortgage insurance. In the event of death, life insurance can help pay off debts. If you die with death and your estate does not have sufficient funds to pay off the debts, your assets will be confiscated and will not get passed on to your surviving family members or someone you care about. If your asset has a co-owner, your co-owner will be left with debts to pay off.

5. Couples with No Children

Both parties would need to decide if they would require life insurance. Should one party be able to support himself/herself without the income of the other party, life insurance would not be a necessity except if they wanted their funeral costs to be covered.

In some circumstances, if one working spouse contributes significantly to the household income or if one spouse is not working or if one spouse would want to leave the other in a better financial position, it is suggested to get life insurance.

6. People Who Have Life Insurance Through Their Work

If you are insured under your employer’s life insurance policy, you should still buy life insurance as you could lose your job, or decide to switch jobs and once you do that, you will no longer be insured under your previous employer. It is always better to have your own life insurance policy rather than relying on your employer’s policy.

7. Business Owners and Partners

If you own a business or have business partners and there are people depending on you, it is recommended to buy a separate life insurance policy for the purpose of your business obligations.

8. Purchasing Life Insurance for Your Parents

Getting life insurance for your parents gives death benefits to you if you are the beneficiary of the policy. In the event of the death of your parents, you will be given the amount of life insurance policy.

9. Life Insurance for Children

Most people think that it is not require to buy life insurance for children as they have no dependants and life insurance would not be beneficial. However, there are 3 reasons to buy life insurance for your kids.

  1. If you are concerned about your kids eventually getting an illness or their long-term health due to hereditary risks. In such cases, it is wise to get them insured early as their illness may make them uninsurable later in life if the kids fail the medical exam for life insurance.
  2. Some parents buy life insurance for children as they reach early adulthood to give them a head start in life. A life insurance policy can help them build savings and give them an opportunity to have a life insurance policy that pays for itself when they have their own family. Life insurance can also be purchased as a gift from parents to their children.
  3. Funeral expenses are costly and death benefits from life insurance can help parents deal with the death of a child and cover funeral expenses. Although children may not provide any financial support to the family, they are precious to their family and their loss can adverse effects on the family on many levels. It may make the parents difficult to work and incur financial losses, require medical help or require help with surviving children as a result of their passing.

10. Life Insurance for Retirement or Senior Years

If you do not have anyone depending on your financially at this stage in life, life insurance may not be necessary unless you want your funeral expenses to be covered or leave money as a legacy. Nonetheless, getting life insurance at this stage in life would be costly and require to pass a medical exam in many circumstances.

By now, you should have a clear understanding of whether you need life insurance and when to get it. However, there are a few types of life insurance available and let us guide you which policy is most suitable for you.

Whole Life Insurance vs Term Life Insurance

Whole Life InsuranceTerm Life Insurance
The BasicsGuaranteed lifetime protection that comes with cash value that grows over the years.Provides temporary coverage for for a fixed period of time.
Duration of CoverageGuaranteed lifetime protection so long as your premiums are paid.Typically 10 to 20 years.
Payment ModePremiums are guaranteed not to increase throughout the coverage and, there are options to pay monthly, quarterly or yearly.Pay premiums throughout the coverage. Term life premiums are less expensive than whole life premiums.
Cash Value & GrowthGuaranteed cash value growth from the investment of your premiums.None.

3 Types of Whole Life Insurance Policies

Whole life policies cover you for life, provide death benefits and a cash value accumulation that grows during the life of the policy.

Participating (Par)Non-participating (Non-par)Investment-linked policies (ILP)
The BasicsIn the event of death, it pays the basic sum assured and any bonus accumulatedThere is a guaranteed, accumulated cash value. In the event of death, only the sum assured is paid out.Depending on the policy, the higher of the sum assured or the value of ILP units or a combination of both are paid out.
  • Fixed premium duration – if your premium term is 20 years, premiums need to be paid for only 20 years
  • The coverage is for life until the age of 99
  • Cash value is applicable if you surrender your policy before death
  • Provides both insurance and investment
  • A portion of your premiums is invested in units of your selected sub-fund
  • There are 2 types of premium term. One is Single Term (lump sum) which is mainly invested into sub-funds and the other is Regular Term where premiums are paid on an on-going basis.
  • Transparent investment performance
DisadvantagesCoverage multipliers may make the policies seem complicated
  • Provides both insurance and investment (This can also be seen as an advantage depending on your perspective)
  • Value of ILP varies depending on the underlying fund you have chosen


Term Life Insurance Policies

Term life policies are short-term policies that cover you for a specific time period that you have chosen to insure yourself (10-20 years normally). They provide death benefits only and can be added on to your existing policies if you feel that your existing policies are not sufficient.

Advantages and Disadvantages of Term Life Insurance

  • Able to choose the coverage time frame (e.g. 10/15/20 years or up to age 65/99 etc.)
  • You are only covered for the period that you pay your premiums for
No cash value

Term Insurance Policies Set Up by Singapore Government

1. Dependants’ Protection Scheme (DPS) – By CPF

DPS is an opt-out term insurance scheme which is automatically extended to eligible CPF members. DPS covers insured members for a maximum sum assured of $46,000 up to 60 years old. The DPS benefit will be paid out to insured members and their families should the insured members pass away or suffer from Terminal Illness or Total Permanent Disability.

More details – https://www.cpf.gov.sg/Members/Schemes/schemes/other-matters/dependants-protection-scheme

2. SAF Group Term Life Insurance Scheme

The plan is offered to all SAF NSmen age 55 and below and Dependants of the SAF NSmen for $1.37 per day for $1 million coverage.

More details – https://www.aviva.com.sg/en/mindef-and-mha/group-term-life/

Things to Consider before Taking up a Whole Life or Term Life Insurance Policy

When To Take Up Whole Life InsuranceWhen To Take Up Term Life Insurance
  • Do you need to provide financially to your dependants for the rest of your life?
  • Do you want to leave a legacy behind to your heirs after you pass away?
  • Are you investment-savvy and confident of getting higher returns than insurers offer you?
  • You feel that your current coverage is insufficient due to your increased income and would like to take up an additional coverage
  • If you have a sudden increase in liabilities such as mortgage, loans etc.

Still not sure which life insurance is suitable for you?
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