Getting life insurance might seem like a daunting task, but if you’re like me – someone who wants to protect their loved ones without breaking the bank – then term life insurance could be your best bet.
I know what it’s like to sift through countless plans, wondering which one is right.
In this post, you’ll learn:
- What term life insurance is and how it works
- The different types of term life insurance available
- How to choose the right plan based on your needs
- Common features you should consider
Term life insurance is one of the most affordable ways to get the coverage you need, but with so many options out there, it’s easy to feel confused.
Keep reading to find out how you can get the right coverage and protect your family’s future without overpaying!
What is term life insurance?
Term life insurance is one of the most affordable and straightforward types of life insurance you can get.
As the name suggests, this policy provides financial protection for a specific period, or “term”, which could range from 10, 20, or even 30 years.
It’s designed to give you peace of mind by ensuring that if something happens to you during this period – whether it’s a terminal illness, total permanent disability, or worse, if you pass away – your loved ones will receive a lump-sum payout.
This can help cover everything from outstanding debts to daily living expenses, ensuring they don’t struggle financially in your absence.
Here’s another thing to note: you can opt for rider add-ons to enhance your coverage.
For example, critical illness riders or early critical illness riders are available, allowing you to get insured against life-altering health issues at a more affordable rate.
These riders give you the flexibility to tailor the plan to your needs without breaking the bank.
It’s particularly useful for covering key financial obligations during certain life stages, like paying off a mortgage or ensuring your children’s education costs are covered.
Types of term life insurance plans
When considering term life insurance, it’s important to know the different types available.
Regular Term Life Insurance Plans (Level Term Plans)
Regular term life insurance, also known as level term plans, is the most common type.
With this plan, the coverage amount (or sum assured) and the premium payments remain constant throughout the policy term.
This means if you purchase a plan with a coverage of $500,000 for 20 years, your premiums remain the same and your beneficiaries will receive the $500,000 if you pass away anytime within the policy period.
Increasing Term Life Insurance Plans
An increasing term life insurance plan works a little differently.
As the name suggests, the coverage amount increases over time, usually annually, while the premiums adjust accordingly.
The reason for this type of plan is to protect against inflation and the rising cost of living, ensuring that the payout your family receives retains its purchasing power.
Decreasing term life insurance
Decreasing term life insurance is a type of policy where the coverage amount reduces over time, usually aligned with a specific financial obligation, like a mortgage.
The idea behind this plan is that as you pay off your debt (e.g., home loan or business loan), the need for a large insurance payout decreases.
In the event of your death during the policy term, the payout will match the outstanding balance of your debt at that time.
Term to 99 Plans
A Term to 99 plan offers coverage until you reach the age of 99 or until you pass away, making it a unique hybrid between a term plan and a whole life plan.
Unlike regular term insurance, which typically lasts for a specific number of years (e.g., 10, 20, or 30 years), this plan ensures you are protected for life – or at least until you’re 99.
In many ways, a Term to 99 plan works similarly to a whole life insurance plan but without the cash value component.
The premiums are generally lower than whole life plans, but you still get lifelong coverage.
Group Term Plans
Group term life insurance plans are typically offered by employers or organisations as part of a benefits package.
These plans cover a group of individuals under a single policy, providing financial protection to employees or members.
One of the primary advantages of group term plans is that they often come at a lower premium than individual policies because the cost is spread across a large number of people.
The coverage is usually basic and may not fully account for your personal needs, but it’s a great starting point if you’re looking for affordable coverage.
The premiums may be partially or fully subsidised by your employer, making it a cost-effective option.
However, it’s important to note that group term insurance typically ends when you leave the company or organisation, so it may not provide long-term protection.
Many Singaporeans benefit from these plans as part of their employment, but it’s always advisable to supplement them with an individual term plan that caters specifically to your family’s financial needs.
Government-Issued Term Plans (Dependants’ Protection Scheme)
The Dependants’ Protection Scheme (DPS) is a government-mandated term life insurance plan in Singapore, aimed at providing basic financial protection for citizens and Permanent Residents (PRs).
Managed by CPF Board and issued by Great Eastern Life, DPS covers individuals between the ages of 21 and 65.
The main goal of DPS is to ensure that in the unfortunate event of death, terminal illness, or total permanent disability, your family will receive a lump-sum payout to help with living expenses.
For most Singaporeans, DPS is a foundational layer of protection, but many choose to take out additional term life insurance to complement this government scheme and ensure they have adequate protection tailored to their individual needs.
Common features in a term life insurance plan to take note of
Convertibility Option
A convertibility option allows you to convert your term life insurance policy into a whole life policy or another type of permanent insurance without having to go through a medical examination or provide additional proof of insurability.
This feature is particularly useful if you anticipate the need for longer-term coverage or want to ensure that your policy continues well into your senior years.
Let’s say you take out a 20-year term life insurance policy in your 30s.
As you approach your 50s, you may find that you still need coverage, whether for estate planning, ongoing financial obligations, or ensuring that your loved ones remain financially secure.
With the convertibility option, you can convert your existing term policy to a whole life plan that provides lifetime coverage without the hassle of a new application or health assessment.
Keep in mind that while the premiums will increase, this feature offers great peace of mind for those planning ahead.
Renewability
This option allows you to renew your policy at the end of the term without undergoing a medical exam, although the premiums will typically increase due to your age.
The benefit here is that you can extend your coverage even if your health has deteriorated since you first took out the policy, ensuring you don’t lose your protection just because the term ends.
Renewability is particularly useful for those who want short-term coverage (such as 10 or 20 years) but also want the flexibility to continue the coverage if their needs change.
While the premiums will be higher during the renewal period, this option ensures that you’re not left unprotected, even as your life circumstances evolve.
Ability to Increase Coverage
Many term life insurance plans come with the option to increase coverage over time.
This feature allows you to adjust your coverage as your financial needs grow, without having to purchase a new policy or undergo additional medical exams.
Some insurers even allow you to increase your coverage at certain milestones in your life, such as the birth of a child or marriage, without additional underwriting.
This is especially helpful as it saves you the hassle of applying for a new policy while giving you the flexibility to ensure your protection is up-to-date with your life’s changes.
Critical Illness Riders
One of the most valuable add-ons you can include in a term life insurance policy is a critical illness rider.
This rider ensures that if you’re diagnosed with a critical illness, such as cancer, heart disease, or stroke, you will receive a lump-sum payout.
This payout can be used to cover medical expenses, loss of income, or any other financial needs during your treatment and recovery.
Early Critical Illness Riders
An early critical illness rider extends the coverage of a traditional critical illness rider by providing payouts at the early stages of diagnosis.
Unlike standard critical illness riders that typically only pay out when the illness reaches a more severe stage, early critical illness riders ensure you receive financial support as soon as the illness is detected, even in its early phases.
This feature is especially valuable because early detection often leads to better treatment outcomes but can still involve significant medical costs.
The payout from an early critical illness rider can also help cover other related expenses like rehabilitation or home care, which are not always covered by health insurance.
This rider gives you the peace of mind that you’ll have funds to cover both medical expenses and day-to-day costs during your recovery.
Term vs whole life insurance plans
To help you along, here is a quick comparison table:
| Term Life Insurance | Whole Life Insurance | |
| Main Objective | Protection | Protection + wealth accumulation |
| Coverage | Death + Total and Permanent Disability (either as basic policy or attached as an add-on rider) | |
| Coverage Duration | For the policy term | Whole of Life (usually up to the age of 99) |
| Cash Value | None | Cash value includes guaranteed benefits (for participating and non-participating policies) and non-guaranteed bonuses (for participating policies only) |
| Investment Risk Born by You | None | Investment risk for non-guaranteed bonuses only |
| Cost of Premiums | Cheapest | Higher than term life insurance |
| Payout at death | Sum insured only | Sum insured |
| Payout if the policy is surrendered | Nothing | Cash value of guaranteed bonuses and vested bonuses (which may be lower than the policy’s death coverage) |
To better understand the differences between term and whole life insurance, read more in our comprehensive guide here.
Why choose a term life plan?
Lower Premiums
One of the most significant benefits of a term life plan is its affordability.
Term life insurance generally comes with lower premiums compared to whole life or other permanent life insurance plans.
This is because term policies offer pure protection without the added components of savings or investment.
You’re simply paying for the coverage, which makes it an ideal choice if you’re looking to get maximum coverage for a lower cost.
Customisable
Term life plans are also highly customisable, giving you the flexibility to tailor the policy to fit your specific needs.
You can choose the length of the coverage term, from as short as 5 or 10 years to as long as 30 years, depending on your financial obligations.
This makes it perfect for addressing specific life stages – such as ensuring your mortgage is paid off, or providing for your children’s education.
In addition to selecting the term, you can also add riders to enhance your coverage.
Temporary Coverage
Unlike whole life insurance, which provides lifelong coverage, a term life plan is designed to offer protection for a specific period.
The idea is to cover you during your most financially vulnerable years, such as when you’re paying off a mortgage, raising children, or supporting dependents.
This temporary coverage is ideal if you’re looking for insurance to meet short- to mid-term financial obligations.
Once the term ends, the policy expires, meaning you’re no longer covered unless you opt for a renewal or convertibility option.
The temporary nature of term life plans also contributes to their lower cost, as you’re only paying for the coverage when you actually need it.
Who should get term life insurance plans?
Budget-Conscious Individuals
If you’re someone who’s budget-conscious and looking for financial protection without breaking the bank, a term life insurance plan is the perfect choice.
As mentioned earlier, term life insurance offers lower premiums compared to whole life plans because it’s designed solely to provide coverage for a specific period.
This means you can get high levels of coverage for a fraction of the cost of other insurance products.
For those who want to ensure their loved ones are financially protected in the event of their passing – without the added features or higher premiums of whole life policies – term life insurance offers maximum protection at a minimal cost.
Single Individuals Who Just Started Working
If you’re a single individual who has just started working, term life insurance is a smart move.
At this stage of your life, you may not have significant financial obligations yet, but you likely want to start planning for the future.
A term life plan allows you to secure affordable coverage while you’re young and healthy, ensuring you lock in lower premium rates.
Moreover, for young professionals, securing life insurance early can protect against unforeseen events like illness or accidents.
With a term life policy, you ensure that even if something happens to you, your family won’t be left burdened by debts or funeral costs.
Plus, starting with term insurance early on means you can revisit and adjust your coverage as your life circumstances evolve.
Married Couples with New Loan Commitments
For married couples with new loan commitments, term life insurance is a practical way to protect your family’s financial stability.
By choosing a term that matches the length of your loan, such as a 20- or 30-year term, you can ensure that your coverage aligns with your repayment schedule.
In the event of your passing, the lump-sum payout from the policy can be used to pay off the loan, ensuring that your spouse doesn’t have to worry about the financial strain of servicing the debt alone.
Additionally, term life plans can often be customised with riders such as critical illness or disability coverage, further safeguarding your family’s finances should illness or injury prevent you from earning an income.
Families with Kids
If you have a family with kids, term life insurance becomes even more critical.
Raising children comes with a host of financial responsibilities – education, healthcare, and daily living expenses – so having a term life policy in place ensures that your children will be taken care of financially should the unexpected happen.
By selecting a policy with a term that lasts until your children become financially independent (for example, a 20- to 25-year plan), you can rest easy knowing that the lump-sum payout will help cover key expenses like school fees, housing costs, and even university tuition.
For families, term life insurance offers affordable coverage with the flexibility to add riders that meet your unique needs, such as coverage for critical illness or disability.
Strategic Investors
For investors who prefer to buy term life insurance and invest the rest, term life offers an affordable option that allows you to maximise your investments.
Since term life insurance typically comes with lower premiums compared to whole life policies, the cost savings can be redirected towards growing your wealth in other areas – whether it’s real estate, stocks, or other financial ventures.
By opting for term life, you get the essential financial protection for your loved ones or business partners, ensuring that in the event of your passing, your financial obligations are covered. Meanwhile, the extra funds saved from lower premiums can be actively invested, allowing you to build wealth and grow your portfolio.
This strategy appeals to those who want the peace of mind of having life insurance while making the most of their money by investing in higher-yield opportunities.
It’s a balanced approach – affordable protection paired with the potential for long-term financial growth.
How much term life insurance coverage do you need?
The amount of term life insurance coverage you need depends on your financial obligations and future goals.
Typically, you want enough coverage to replace your income, pay off any debts like a mortgage, and cover living expenses for your loved ones.
A good rule of thumb by the Life Insurance Association Singapore is to aim for coverage that’s around 9 to 10 times your annual income.
However, your exact needs may vary based on factors like family size, education costs, and other financial responsibilities.
And because of this, it can actually be pretty complicated to determine the exact amount – something that many of our readers are always struggling with.
That’s why I created the insurance coverage calculator that’s included in The Financial Toolkit.
In this calculator, you can take into consideration all your income, liabilities, and assets in determining how much insurance coverage you need.
With this calculator, rather than purchasing based on a guideline, you know exactly how much life insurance you need based on your own financial situation.
No more second guessing, having insufficient coverage, or overpaying for insurance.
You can also find out how to do it yourself in this guide here.
How to choose the right term life insurance plan in Singapore?
Identify Your Needs
Start by evaluating your personal and financial situation.
Ask yourself important questions: What are you trying to protect?
Are you covering a mortgage, ensuring your kids’ education, or providing a safety net for your spouse?
Once you have a clear understanding of your financial obligations, you can determine the amount of coverage you need and for how long.
For example, if your mortgage is for 20 years, consider a policy that covers you for at least that period.
Finding the Balance Between Premiums and Coverage
While it’s tempting to opt for the cheapest policy, it’s crucial to find a balance between affordable premiums and adequate coverage.
You want enough coverage to ensure your loved ones won’t face financial difficulties in your absence, but at the same time, the premiums should fit comfortably within your budget.
Compare different plans and premium structures to find one that offers value for money without compromising on protection.
Seek Professional Advice
With so many options available, it can be overwhelming to choose the right plan.
This is where seeking professional advice can be invaluable.
Licensed financial advisors can help you evaluate your needs, compare plans, and identify the best options based on your specific situation.
They can also guide you through customisation options, like adding riders for critical illness or adjusting the term length to match your financial milestones.
For a more detailed breakdown of how to choose the right term life insurance in Singapore, including key features to look out for and tips on maximising your coverage, check out our full guide here.
Frequently Asked Questions
Can I get a payout if I am diagnosed with a terminal illness or become disabled?
Yes, with many term life insurance policies, you can receive a payout if you’re diagnosed with a terminal illness or become totally and permanently disabled.
This is often part of the standard coverage or available through specific riders.
The payout can help cover medical expenses, loss of income, or provide financial support for your family during such a challenging time.
Be sure to check your policy terms to understand what’s included and whether you need to add any riders for this coverage.
Can a senior citizen get term life insurance?
Yes, senior citizens can get term life insurance, but frankly, unlikely.
Options are limited, and the premiums are generally higher due to increased age and potential health risks.
Some insurers offer term life plans specifically designed for older individuals, sometimes with a higher age cap like 75 or 85, or even term to 99 plans.
However, eligibility may depend on medical underwriting and the specific policy terms.
If you’re a senior looking for coverage, it’s important to compare options and consider your financial needs and health condition before choosing a plan.
Conclusion
Term life insurance is a simple and affordable way to ensure your loved ones are financially protected if anything happens to you.
We’ve covered the basics of what term life insurance is, the types of plans available, and how to choose the right one based on your needs.
Whether you’re just starting out, managing new loan commitments, or planning for your family’s future, term life insurance offers the flexibility and coverage to give you peace of mind.
If you’re still unsure which policy is best for you or how much coverage you really need, don’t worry – you’re not alone.
Sometimes, it helps to talk it through with someone who knows the ins and outs of insurance.
Feel free to chat with one of our trusted financial advisor partners, and they’ll help you figure out the best way to protect your future.
After all, it’s always better to make informed decisions when it comes to something as important as your family’s financial security.
References
- https://www.investopedia.com/terms/t/termlife.asp
- https://www.lia.org.sg/media/2524/ygtli_english_may-2020_low-res.pdf
- https://www.moneysense.gov.sg/articles/2018/11/understanding-term-insurance
- https://www.moneysense.gov.sg/articles/2018/10/life-insurance-comparing-term-and-bundled-products?sc_lang=en
