One of the most prevalent worries that parents have is leaving their loved ones forever unexpectedly. Most people counter this by getting life insurance so that their children can receive a death benefit when that happens.
Say you have been working for a certain number of years and have saved up some money that you do not see yourself having to use.
Under this circumstance, a single premium whole life (SPWL) insurance might be better to safeguard your family’s interest in the event that something happens to you.
Read on to find out more about what SPWL insurance is and how it differs from your regular whole life insurance.
What is single premium whole life insurance?
Single-premium refers to the one-time, upfront premium payable at the start of the policy term.
Life insurance offers you a death benefit that is payable to your loved ones at the onset of your death, or in some instances when you turn 100 years old.
It is essentially a whole life insurance policy that only requires one premium payment.
Single-Premium Whole Life Insurance vs Whole Life Insurance
You might think I am joking when I say the main difference between the two lies in their names. However, that is actually a fact!
The main difference is that for SPWL insurance, you only need to make a one-time upfront premium payment while whole life insurance requires you to make regular premium payments for a specified duration.
Nonetheless, both insurances will cover you till you pass on and pay out the death benefit to your family. Also, they both offer you the ability to accumulate cash value in your policies.
Since both policies support your goal of safeguarding your loved ones in case something happens to you, it is important for you to consider which plan aligns better with your financial situation.
For instance, if you are someone who has a relatively high net worth or has saved up a big sum of money from years of working, SPWL might suit you better as you are able to afford the lump sum payment.
In comparison, if you are someone who has just started working and does not have much savings yet, whole life insurance would be a better fit as you have to rely on your monthly salary to fund your premium payments.
Types of single premium whole life insurance
There are 2 types of SPWL insurance that are primarily differentiated by how your cash value accumulation is obtained.
Through investment-linked policy
An investment-linked policy (ILP) typically invests in unit trusts and is often the riskier one out of the two as your cash value (sum assured) here depends entirely on how the fund invested in performs.
This means that if your invested fund is not doing well, there may be a chance that you’ll lose a portion of your cash value.
However, with ILPs, you might have higher potential returns as your cash value than if it was invested via a participating fund.
Through a participating whole life insurance plan
The most common way to get life insurance coverage is through a participating whole life insurance plan.
The participating fund is basically a collection of investment products in different asset classes invested by your insurance provider firm.
Your insurance company uses the money from your premium payment, along with the premiums paid by other clients, to invest in its participating fund so as to generate guaranteed and non-guaranteed bonuses for you.
Advantages of single premium whole life insurance
There are a few main reasons you should consider while purchasing SPWL insurance:
It is generally less expensive than purchasing annual policies. When you buy full life insurance, the premium is payable through a one-time payment which means there’s no annual increase in the cost of your policy.
Quicker cash value accumulation
As you are fully funding the SPWL policy at the start, your entire cash value can be immediately used to earn interest for you.
In contrast to whole life insurances with regular premium payments, your money is slowly invested and would gather returns at a slower rate.
Furthermore, the SPWL insurance also offers you greater returns than your typical fixed deposits or just leaving your cash in your bank account, especially with the extremely low-interest rates nowadays
Are you someone that is naturally forgetful and are afraid of things being too troublesome?
By making full one-time payment for your SPWL insurance, you won’t have to worry about forgetting to make premium payments.
Forgetting to make premium payments is a huge mistake as it might lead to the ceasing of your policy and loss of your coverage (and money!).
Nominations can be made
Say you have more than one child, when you pass away and do not have a proper will, they might argue and fall out to get the largest share of the inheritance.
With the SPWL plan, you are able to indicate how much of your death benefit will be allocated to each child, so that conflict can be avoided between them.
Despite the advantages of SPWL insurances, you must always take note to ensure that you can afford the large single premium sum and not have to starve yourself or take on loans just to pay it off.
Disadvantages of single premium whole life insurance
Purchasing a single premium life insurance policy can be an attractive option, but it is not without risk. Every policy carries certain risks, and you should evaluate them frequently over time.
Locked up money
Paying the full premium at the commencement of your policy is a double-edged sword and has its disadvantages as well.
Besides the fact that the premium is a pretty large figure, the amount you’ve paid for your SPWL insurance is also locked up until you pass on.
If you require this sum of cash while you are still alive, you would have to opt to surrender your plan, which may incur huge fees for you – depending on which policy year you’re surrendering it in.
Hence, it is very important that you are absolutely sure you do not need that money during your lifetime.
Potential Complicated Fee Structure
The SPWL insurance involves paying different types of fees that can be complicated – especially if you opt for an ILP.
Therefore, you need to understand all the workings of the fees involved.
This ensures that you know what you are getting into so that you will not encounter surprises later on.
Medical underwriting necessary
As with most life insurances, you will have to prove a clean bill of health to be eligible for single premium whole life insurance. This means that you need to do a health underwriting that clears you of any medical conditions.
In the case that you are found to have any medical conditions, you may need to pay higher premiums or in severe cases, your application would be rejected.
That is also why financial advisors often advise clients to buy life insurance as early as they can, because when you are young the likelihood of you having medical conditions is the least.
Where can you buy single premium whole life insurance if you’re in Singapore?
With a simple Google Search, you can easily find some of the SPWL policies offered by different insurance providers in Singapore.
Here are a few of them:
Great Eastern Prestige Life Rewards 4 Brochure (SGD)
Besides providing a death benefit for your loved ones when you pass away or suffer from a terminal illness, you can receive guaranteed monthly income for life starting from the 2nd policy year.
Aviva MyWholeLifePlan III
Besides paying premiums regularly for a period of between 5 to 25 years, Aviva MyWholeLifePlan III also offers the possibility of making a single premium payment.
Other than base coverage that pays out the death benefit at the onset of your death or terminal illness, the policy also offers other flexible options for you to choose from, such as options for higher coverage, income payout option, and guaranteed extra protection option.
China Taiping Infinite Harvest (III)
With a one-time premium sum, you can ensure a lifetime of steady monthly payouts for your child or receive a passive income for yourself (from the 5th policy month) till you pass away and still leave a death benefit sum for your kid.
NTUC Income Heritage Solitaire
NTUC Income Heritage Solitaire provides you with high coverage if you die or suffer from a terminal illness so that your family is taken care of.
Enjoy up to 320% of your sum assured (minimum protection value) till the age of 80 and the fact that 80% of your cash value is guaranteed.
Finding the right insurer and the right product is always a challenge, therefore don’t be afraid to reach out to our certified financial advisors for more guidance regarding SPWL insurance.
Although your typical whole life insurance that requires regular premium payment can be helpful in taking care of your loved ones when you pass on, a single premium whole life insurance might be able to offer more benefits and allow you to leave a larger legacy for your family.
Naturally, this is all under the assumption that you can comfortably afford the single premium amount.
Hopefully, the above points will help you in deciding if a single premium whole life insurance is right for you and your search for the right SPWL plan for you.