Insurance You Can’t Live Without – Life Insurance

There’s insurance for just about every material asset you posses. But the one policy you should never go without is a life insurance, which provides your dependents with financial security if you become seriously ill, disabled, or pass on.

Like any other policy, you’ll need to pay a monthly premium that’s determined by factors such as your age, health, and family medical history. With this information, an insurer will determine how susceptible you are to disease and illness – making your premium highly variable.

Important Note: Singaporean citizens and PRs are already given basic coverage through the government’s MediShield Life scheme. But you can purchase supplementary insurance from private insurers to complement your MediShield Life payouts.

Why Is Life Insurance Complicated?

In the past, life insurance wasn’t particularly popular because elderly citizens found it too expensive and younger individuals didn’t like the idea of “wasting” years of premiums paid. As a result, insurers began offering features such as policies that doubled as savings plans or investments.

Now, most life insurance policies not only give payouts to your beneficiaries in the event of disaster, but they can also grow your money and offer lump sums after a number of years. Unfortunately, these features will raise your premiums, so limit your expense by shopping around for a policy that fits your needs and budget.

Here are the three types of life insurance policies offered:

Term Life Insurance

Term life insurance is the most basic type of life insurance you can purchase. It’s the most economical choice because it comes with an expiry date lasting from 5 – 40 years depending on the policy. So if you suffer critical illness, permanent disability, or pass on during this fixed period, the insurer will pay your dependents the agreed sum.

Unlike other life insurance policies, a term life policy doesn’t offer any savings/investment component. But term life insurance offers the lowest premiums, especially if you get the policy before 30. If you’re confident of your nest egg growing efforts (stocks, property, etc.), consider getting a term life insurance policy.

Life Insurance (Endowment)

Endowment policies are like a cross between your life insurance premium payment and a savings deposit. However, these policies come with maturity dates either based on time (10, 15, or 20 years) or age (55 years old or more).

If you pass on, the lump sum your beneficiaries would receive would vary according to whether your policy matured or not. The amount they would receive depends on the following policy types:

• Par Policy: Par policies have two components, an assured sum that’s paid out to your beneficiaries when you pass on and a variable “bonus.” The way insurers factor the bonus varies, so ask insurance agents how the bonus amount is determined.

• Non-Par Policy: Non-par policies only pay out the “assured” sum upon either your death or the maturation of your policy.

• Investment-Linked Insurance Policy (ILP): Information on this policy type is written below.

Investment-Linked Insurance Policies (ILPs)

Investment-linked insurance policies (ILPs) double as investments, meaning that the amount you pay in premiums is used to buy units in various funds. You can also choose the funds that you want your money to go into from a list provided by your insurer.

ILPs are the same as other insurance policies in that in the event if serious illness, disability, or death, your beneficiaries will receive a payout – but the amount will be the higher of either your assured sum or the current value of the ILP units you “invested” in. Some policies may even have a mix of the two.

Before you choose an investment-linked insurance policy, keep in mind that ILPs are open-market investments, so payouts will fluctuate.