A term life insurance or arguably the simplest form of life insurance that is obtained by individuals who want to make sure that their loved ones are protected from financial losses in the event of death. It can provide financial stability that can help settle debts, pay living expenses, or compensate for medical expenses, among others.
In general, a term life insurance package is less expensive compared to its permanent whole-life counterparts, but unlike the former, the latter does not come with a cash value. Therefore, there won’t be any payout after the expiration of the said term; in line with this, there won’t be any value other than a death benefit.
To ensure that everything is kept simple, a vast majority of term insurance Singapore policies that are out on the market are “level premium,” which means that your monthly premium does not change for the whole entirety of the policy.
Read on and find out more about this sought-after insurance policy.
How does it work?
You pay a set premium for an arranged period of time: usually about 10 to 30 years. If you die during the period, a cash benefit is awarded to your family or anyone who is legally indicated as your beneficiary. In addition to this stipulation, there are other guidelines that govern even the best term life insurance in Singapore premiums.
- It is like a contract
In simple terms, a term life insurance policy is like an agreement between the individual who owns the policy as well as the insurance company. Here, the owner agrees to pay a premium, and in return, the insurance company is obliged to pay a specific death benefit.
The said benefit is usually tax-free unless there is a stipulation that the premiums are settled with pre-tax payment.
- There is an application process
Some people can obtain much coverage at a very small amount, but bear in mind that it is not always the case. Remember, before insurance companies give you a policy, they perform an assessment (underwriting process) to determine how much risk needs to be insured.
Here, company personnel are going to request for a medical exam to evaluate your overall health and well-being. Along the way, your line of work, lifestyle, and so forth, are also going to be assessed. That is because certain hobbies such as scuba diving and cross-country biking may be deemed risky, and may translate to higher rates.
Likewise, dangerous occupations such as tower engineering, fire fighting, and so on, may cause rates to shoot up.
- You can set a term length
One of the most asked questions when it comes to term insurance in Singapore is, “How long would I need coverage?” If you have children, a general rule of thumb is to pick a term that is long enough to see them go through college.
That said, the longer the term, the more you are going to pay each month a set
coverage amount. In line with this, it is encouraged to go for a longer-term policy than a shorter one. That is because you just do not know what may happen in the
future, and it is usually easier to get insurance while you are younger and in the pink of health.
- You can decide on the death benefit that you want
In general, you should seriously consider getting enough coverage that can be used to care for the needs of your family. Bear in mind that whatever amount of coverage you choose, there is a chance that the cost that you are going to settle is less than you thought. In line with this a recent study suggested that about 44 percent of millennials believe that life insurance policies are approximately five times more expensive than the actual cost.
- You can name your beneficiaries
In term life insurance, you get to choose your beneficiaries, which means that the benefit does not have to go to just one person. For instance, you can give half of it to your spouse and then divide the rest between your remaining children. And while in general, beneficiaries are usually family, take note that they do not have to be. That being said, you can choose to leave a portion or all of your benefits to a friend, trust, charitable organisation, or others.
The benefits of term life insurance
Term life insurance is popular among young people as well as adults with children. That is because they can enjoy significant coverage without breaking the bank. Financial benefits such as the replacement of lost income can also be enjoyed along the way.
The said insurance is also ideal for those with growing families since they have the advantage of maintaining coverage until their children become self-sufficient.
It should be noted, though, that the best term insurance in Singapore premium can also be advantageous for surviving spouses. Some insurance companies set a maximum age for their insurance coverage, which usually ranges from 80 to 90 years old.
Types of term life insurance
Term life insurance has numerous types, and your best option is based on your individual circumstances. A cast majority of firms out there provide a 10–30-year tenure, although some offer 35–40 years.
- Level Term or Level-Premium Policy
A level-premium insurance has a monthly payment for the whole duration of the policy. As mentioned earlier, this particular policy typically covers 10–30 years and is complemented by a fixed death benefit.
- Yearly Renewable Term
A yearly renewable term (YRT) are one-year policies that can be renewed annually without proof of insurability.
The premiums rise from one year to another as the insured individual ages.
Therefore, the premiums can become expensive along the way. Yes, it can be a bit costly, but it is ideal for those who need temporary coverage.
Term life insurance Vs permanent life insurance
Aside from term life insurance, permanent life insurance is another coverage that many
turn to. But which is the better option? Read and find out what sets them apart from each other.
- Cost of premium
In general, the premiums of term life insurance are way lower than permanent life insurance. On the other hand, the premiums of the former may increase upon
renewal, while the premiums of the latter stay the same.
- Cash value
Like most kinds of permanent insurance, there is a savings component that can
translate to cash value. That said, the longer your pay into your chosen policy, the more chance that its value grows. You can opt to cash in or borrow using your permanent life policy and utilise the necessary funds. This is not the case with term life insurance since it does not accumulate cash value since it does not come with a savings component.
If you already have a term life insurance policy, you can easily convert it to a permanent policy. This is not the case with permanent policies because of the fact that they are not convertible.
- Death benefits
Both term life insurance policy and permanent life insurance offer a death benefit upon the insured person’s death if the term is still not expired and is in good standing.
In the end, the fact that term life insurance is cheaper compared to other premiums and payout when the insured individual dies makes it a worthwhile investment. An investment that you should turn to if you want your loved ones not to be burdened by financial woes in the event of your demise.