What is universal life insurance?
Universal life insurance in Singapore can be said to be a combination of an investment-linked policy and a whole life insurance plan.
It typically lasts your entire life and is used to leave a legacy for your future generation.
Besides offering insurance coverage for your life, a universal life insurance policy also offers you a saving portion, which allows you to accumulate cash value.
Any amount of premiums paid above the required minimum for your cost of insurance can be saved for future usage.
At first instance, it seems that universal life insurance is similar to whole life insurance but the former actually provides much more flexibility than the latter.
For example, when you are unable to make premium payments for your universal life insurance, the premium amount can be deducted from the cash value you have saved up instead of your policy ceasing.
Therefore, it can be considered a logical factor for retirement and legacy planning.
In the next section, we’ll provide a comparison between them along with term-life insurance and how they can benefit you in the long run.
Universal Life vs. Whole Life Insurance vs. Term Life
| Term Life Insurance | Whole Life Insurance | Universal Life Insurance | |
| Coverage offered | Death, Terminal Illness, and Total and Permanent Disability (sometimes offered as a rider) | ||
| Accumulates cash value? | No | Yes | Yes |
| Affordability | Yes | Much expensive than term life insurance | More expensive than term life insurance but can be cheaper than whole life insurance |
| Premium payment amounts | Typically fixed | Typically fixed | Provides for greater flexibility (adjustable) |
| Death Benefit | Fixed | Fixed | Flexible (adjustable) |
Generally, universal life insurance also has a higher rate of growth for your cash value compared to the other two.
Furthermore, you also have the option to withdraw or top-up from your universal life insurance plan throughout the policy term.
Compared to whole life and term life, universal life insurance offers the insured much more customisation and flexibility.
This makes universal life insurance very attractive to citizens with a high net worth and amongst people who have high-value assets, as this policy type contains the advantages of both whole life and term life insurances.
Types of Universal Life Insurance in Singapore
There are 3 primary universal life insurance types:
- Traditional
- Variable
- Indexed
The main difference between these 3 types of universal life insurances that you should note is how the returns are produced.
Traditional Universal Life Insurance
Traditional universal life insurance is usually fully invested into bonds, whereby the crediting interest rates determine your cash value gains. A traditional type of universal life insurance is generally the cheapest within the group.
Variable Universal Life Insurance
Variable universal life insurance means the growth of value depends primarily on the type of chosen investments and the funds involved, such as financial indexes.
As the name indicates, performance may be inconsistent with no definite pattern.
Variable universal life insurance works similarly to an investment-linked insurance plan.
Indexed Universal Life Insurance
A mixture of variable and traditional life insurance. You can choose where your investment is allocated depending on your risk appetite.
For instance, if you have a high-risk tolerance you may choose to invest a higher proportion to indexes (variable) and lesser to “fixed-income” investments like bonds (traditional).
Advantages of Universal Life Insurance
Coverage Adjustment
It is possible to adjust and alter coverage after a certain number of years if a specific benefit is no longer needed.
You can increase the cash value by adding to it or reduce it by cutting your premium amounts so that you can adapt to change.
Relatively Affordable
It is comparatively more affordable than other forms of life insurance.
However, a universal life policy might or might not be cheaper than a whole life plan.
Flexible Premium Amounts
Another major advantage is the ability to determine the amount of premium to be paid by the policyholder. Paying additional premiums over time can boost cash value.
With more premiums paid, you can even adjust the death benefit based on your situation in life. You have the power to either increase or decrease your death benefit.
Fixed Death Benefit
In universal life policies, the death benefit is usually the higher of the sum assured or the current cash value.
If your cash value is higher than the sum assured, the death benefit can be susceptible to changes based on the current economic situation.
Of course, either way, you’ll at least receive the sum assured – which is a positive note.
If you look at it differently, this is disadvantageous as compared to whole life plans as the death benefit usually includes both the sum assured and certain non-guaranteed portions.
But the sum assured for whole life plans is generally lower than those of universal life.
Premium Financing
With a universal life insurance policy, your cash value can be used to finance your policy should you be unable to make premium payments.
Loans can also be obtained as leverage to finance your policy, although there are no tax benefits for you.
Disadvantages of Universal Life Insurance
Not the Cheapest Option
The premium fees are higher than other forms of life insurance, such as term life insurance. If price is a concern, consider a term plan instead.
Potential Complicated Fee Structure
Having a universal life plan involves paying different types of fees that can be complicated, so you need to understand all the workings of the fees involved.
Chance of Decreased Cash Value
As premiums are used to purchase investments, your cash value may decrease if there are market losses involved.
Policy Lapse
Despite the flexibility options in a universal life policy, the no-lapse assurance will end in due course of time if you rely on the cash value to fund your policy.
This means that if the market performance has not been satisfactory, the cash value would not be able to cover all the fees. Thus, leading to policy lapse.
What to look out for when choosing a universal life insurance plan?
Before you make your final decision about universal life insurance, there are a few things you should consider and look out for.
Choosing based on your financial goals
If you have goals to save your money for an extended period of time, you’ll want to definitely maximise your savings along with plans that are based on retirement.
It is therefore important to consider universal life insurance according to your financial objective.
Realise the payment options
Since universal life insurance policies allow you to raise or lower the premiums based on your financial situation, it’s flexible enough for you to maintain the policy in effect for ages to come.
Understanding this feature will help you in handling your finances aptly.
Understand the returns you will receive
Due to the great degree of flexibility under universal life insurance plans, the actual returns you will receive might be lesser than advertised. It is important to have a thorough understanding so that you will not get a shock later on.
Best Universal Life Insurance plans in Singapore
Choosing a trusted insurer is important. So, we’ll give you a list of plans that are worth considering based on the 3 types of universal life insurance.
Traditional:
- Transamerica Universal Life Alpha
- AIA Platinum Legacy
- Manulife Heirloom
- HSBC Jade Legacy / Legacy Ultra
- Singlife Universal Life
Indexed:
- Manulife Signature Index Universal Life
- Manulife Signature Index Universal Life Select
Variable:
- AXA Privilege Wealth VUL
- AXA Private Wealth VUL
- Swiss Life Alpha
- Swiss Life Alpha Plus
Choosing an obscure insurer is not recommended as they may care more about their own interest, such as lower interest rates and higher insurance costs.
A reputed insurer will, however, give you a better chance at maximizing your financial goals and putting you in a better economic position. A larger insurer is less likely to engage in shady or unwanted practices during your tenure with them.
Where Can You Buy Universal Life Insurance in Singapore?
Since life insurance is something that should be understood thoroughly, seeking the help of professionals is important. In Singapore, you can seek advice and insight from banks, insurance agents, and financial advisors.
While seeking advice from banks, keep in mind that they’ll promote only the insurance products that they’re tied up with. The situation is somewhat similar for insurance companies or agents as they’ll push only the insurance plans they’re representing.
Additional Reading: Independent Financial Advisors vs Financial Advisor vs Tied Agents
You would not want to make a decision that you’ll regret in retrospect. So make sure to do your research and look further into topics that are based on universal life insurance.
Conclusion
Choosing universal life insurance in Singapore is something that one should not take lightly as you’re putting both your family’s and your own future on the table.
Like any other type of insurance, a universal life plan has its own upsides and downsides too.
Your future generation will benefit from smart financial choices if you make the right decisions.
Whether your goals are maximising your wealth, increasing cash value, or leaving a legacy where your family will be comfortable, you should think about capitalising on your financial holdings to convert them into something greater.
If you have any doubts about making the best financial decision for yourself and your family, the most logical method is to seek advice and insight from experienced financial advisors.
They’ll think in your best interests and won’t try to force any product on you. They’ll help you find the best plan that suits you.
