Term insurance (also known as “Term Life Insurance“) is usually preferred because the premiums tend to be more affordable, especially when the coverage amount required is higher. It is also a more popular option that is adopted to cover a mortgage loan one has.
However, it is important to note that while it tends to be cheaper, it is part of a strategy know as “Buy-Term-Invest-Rest” (BTIR). Thus, it is a good idea to compare whole life insurance vs term insurance to decide which is a more cost-effective solution to meet your needs.
Therefore, while you want to protect you and your loved ones with insurance. It is also important to plan for other life events that have a higher likelihood of happening, such as retirement or your children’s university education.
Which Term Insurance is Best?
While the cost of premiums is a primary factor that most people would look into, there are other factors that you may want to consider before deciding what is the best term life insurance for you.
Different insurers target different audiences (age bands, gender etc) and therefore, while a solution from a particular provider may be more suited for you, a different one may offer a more convincing solution for someone else who is of another demographic.
Factors to consider:
- Amount of Coverage – Decide and calculate how much life insurance coverage you require before considering the alternatives. If you require more cover, you would have access to more solutions. It is noted that a number of partners only offer solutions starting from $500,000 – therefore, your options would be a lot more limited at amounts lesser than that.
- Length of Cover – Decide how long you need the cover for. Are you looking to just cover for the tenure of your existing mortgage? Or do you want to have a buffer in the event you were to move into a new home in future and require a tenure that is of a longer term?
- Riders – Are you looking for coverage other than pre-mature death?
- Total and Permanent Disability (TPD) – While most companies have similar definitions when it comes to TPD, some may process a claim when the disability is less severe.
- Critical Illness – Do you wish to have critical illness coverage in addition to pre-mature death? If so, would you prefer advanced stage, early stage, of multiple stage coverage? These options become more limited as not all insurers may offer such solutions.
- Premium Waivers – A form of rider that waives all future premiums (or for a period of time) upon trigger events occurring. These events may include, a confirmed diagnosis of early or advanced stage critical illness, unemployment.
- Seasonal Discounts – Insurers may offer discounts for a limited period of time and if you are looking for a term life insurance, you may be able to get a more competitive pricing if the timing is right.
- Guaranteed Convertibility Option – This gives you the option of converting your term insurance into a whole life insurance without the need of filling up any health declaration forms. However, the premiums for the new policy will be dependent on the age at which you exercise this option to convert your policy.
- Guaranteed Issuance Option (GIO) – The GIO option allows you to increase you existing coverage (or purchase a new policy) by a certain percentage without the need of filling up any health declaration forms upon Life Stage Events. These may include, a change in marital status, purchasing a new home or even having a newborn. This option is particular useful if you are not done with family planning, or foresee yourself moving houses in future as pre-existing conditions may develop resulting one being un-insurable at that point.
As observed above, both clients A and B were looking for a 5-year cover for a loan they recently took up. Client A is in late 30s, while client B is in his mid 40s. The more cost effective solution switched when a CI rider was added for Client A. Whereas for Client B, his options were more limited (as compared to Client A) due to the amount of coverage he required.
Insurance premiums have also become a lot more competitive and premiums have gone down in recent years. Lorna Tan mentioned this in her Straits Times article “Lower guaranteed benefits likely under new insurance rules“.
More offerings of less capital-intensive products, such as term, investment-linked insurance policies (ILP), and personal accident plans are also likely to go on the market.
With more offerings in the market, means more competition – And that usually means that consumers (such as yourself and I) will have access to better options!
What about Group Term Insurance?
I would agree that the more popular MINDEF & MHA group term life insurance is one (if not) of the most cost-effective solutions in the market. However, there are a few key clauses that one should take note of.
- You do not own the policy, which means that you do not have say in any changes made between the Policy owner (MINDEF/MHA) and insurer.
- You are unable to effect this policy under a will, hence any payouts will ONLY be paid out according to the Intestate Succession Act (ISA). Therefore, if you do not wish for your beneficiaries to receive a payout in the respective amounts, then this policy may not fulfil your wishes upon pre-mature death.
- You may not get a full payout in the event of Total and Permanent Disability (TPD). According to Aviva’s MINDEF/MHA policy, only the first $200,000 will be paid out while the balance will be given in three equal annual instalments. This may become a more relevant issue if the person insured is a sole breadwinner or brings in most of the family’s income.
- Premiums become significantly more expensive after the age of 65 for Death/TPD cover, while that of the Critical Illness rider becomes significantly more expensive later on (from 46 age-next-birthday onwards). Premiums for personal insurance is typically level, which means that your premiums should remain the same throughout the policy term.
While group term insurance is cheap, I believe that it should not form part of your core portfolio – but rather, as a supplement to a financial portfolio with a strong foundation.
Current options in the market which I am partnered with and am able to do a comparison for you include:
- Aviva MyProtector-Term Plan II
- AXA Term Protector
- China Life Term Guardian
- China Taiping i-Protect
- FWD Future First
- HSBC Term Protect Advantage
- NTUC Income iTerm / NTUC Term Life Solitaire
- Manulife ManuProtect Term (II)
- Tokio Marine Term Assure (II)