“Whole Life Insurance” as the name suggests covers one until they passes on. Such policies have had many changes since the past. While the premium term of such policies in the past were payable throughout one’s lifetime, they are typically “limited” these days.
In later years, insurers started combining the whole life policy with an embedded term life policy. This comes in the form of having a “booster” or “multiplier” where a consumer can select how long they want a boosted cover for. For simplicity, such solutions will still be known as whole of life.
A simple illustration above shows you the relationship between the multiplier, premium amount, and cash value (also known as surrender value) while the effective cover of $300,000 is kept constant until the age of 70.
The higher the multiplier, one can expect to pay a lower premium and a lower projected surrender value.
As this feature was integrated on in later years, it gave people more access to low cost whole life insurance – also one of the main reasons that has made them more competitive, particularly when we compare them against term policies.
In understanding more about your options, the more likely you are to make a better decision.
- The structure of Whole Life Policies
- Main factors for consideration
- What about plans parents got for me?
- Do I need to get Whole Life Insurance for my child?
The Structure of Whole Life Policies
Taking a quick look at traditional policies, you would notice that the amount of coverage increases over the years i.e. Payout = Basic Sum Assured + Cash Value. This cash value, is dependent on how the investment team manages the funds and their expected returns.
However, modern whole of life insurance plans differ slightly. Before the multiplier expiry, the policy either pays out,
- The multiplied cover OR the basic sum assured plus cash value, whichever is higher or;
- The multiplied cover plus cash value
After the multiplier expires, both types will follow the same payout structure as that of a traditional policy.
Factors to Consider
Now when deciding which would be the best solution for yourself, there are a few points that we need to consider.
- Amount of Coverage – Firstly, you want to know what your shortfall needs are before knowing what to look out for. From that point, you can then decide what basic sum assured and multiplier you prefer. The lower the basic sum insured you prefer, the lesser options you may have.
- Multiplier Expiry Age – While mainly for income replacement, some may choose to maintain the policy in the event they have unforeseen expenses in their retirement years, others may choose to surrender them for their cash value to fund their retirement.
- Length of Premium – Financial planning is about managing your cashflow and finances. Similar to how one would choose the tenure of their mortgage loan, you can decide the commitment period you prefer. They are usually in multiples of 5, which stretch up till age 65. In some instances, although rarely selected, you may even wish to pay till 99.
- Riders – What other features are you looking out for?
- Total and Permanent Disability (TPD) – there are generally 3 broad definitions and some companies may choose to adopt all of them, or a couple of them in variation.
- For example, one company may cover for assumptive TPD until age 70, while another may choose to do it till 99. Another example is while most companies may pay out this benefit in the event one is unable to perform 3 out of 6 Activities of Daily Living (ADLs), other may choose to pay out when one is unable to perform 2 instead.
- Critical Illness – Do prefer to be protected against advanced stage, early stage? Or a mixture of it?
- Pre-existing Conditions / Family History – Due to pre-existing conditions, some underwriters may choose to reject an application, while others may accept a case as standard.
- For example, if a person has a benign tumour present in their body. Most companies may not accept it, while a couple may.
- Also, if you have had a family history of critical illness(es), you might prefer a solution that pays out an additional amount in the event this occurs.
- Retrenchment Benefits – One of the benefits of whole life insurance is the cash value, which acts as a protective cover, to prevent it from lapsing (or termination) in the event you miss a payment or are unable to afford it. This usually happens in times of financially difficulty, when economic conditions are unstable. Some companies may choose to waive your premiums for a period of time, while others may waive the interest instead.
If you need a comparison with these factors, you will find it useful to reach out and do an initial assessment to figure out a suitable recommendation for yourself.
What about the plans that my parents got for me?
While consolidating the policies of many of my clients, I often come across whole life plans that were bought for them when they were much younger.
As the landscape evolves, products also improve (most of the time) and definitions also improve.
When it comes to the TPD payout, a few disadvantages of such policies are
- The payouts are made in tranches, for e.g. 10% of the sum assured (plus bonuses) for the first 4 years, after which the remaining 60% is paid out on the 5th year.
- Proof of continued disability is required. This means a medical professional is needed to verify the condition of the insured. Policies today pay out a full lump sum.
- Disability coverage is only until age 60 (if you are lucky, then it could be 65).
- Companies back then only covered for 1 of 3 definitions used today. Assumptive TPD, which is to suffer a total and irrecoverable (a) Loss of sight of both eyes; (b) Loss of sight of one eye and loss by severance of use of one limb at or above the ankle of wrist; or (c) Loss by severance of loss of use of (i) both hands at or above the wrists; (ii) both feet at or above the ankles; (iii) or one hand at or above the wrist and one foot at or above the ankle.
Does this mean that the policy has no more use? No. Such policies can be re-purposed to meet other goals such as your retirement needs. However, it would also depend on your immediate needs and what would make most sense for you.
Do I need to get whole life insurance for my child?
When it comes to considering cover for your child. The priority should be in re-evaluating your personal needs (especially when a newborn arrives) as they would be directly affected in an unforeseen event.
Your next step would be to consider their university costs and your retirement planning needs, as these events have a much higher likelihood of happening, and decide if you have disposable income to get your child covered.
Others may consider otherwise, as the payout you receive in the event your child is diagnosed with a critical illness (assuming the rider is added) would be used to engage a caretaker or for you to take time off from work so that you may take care of them.
Current options in the market which I am partnered with and am able to do a comparison for you include (although I do have friends partnered with other firms):
- Aviva MyWholeLifePlan IV
- AXA Life Treasure (II)
- China Life Whole Life Guardian
- China Life Multiplier Guardian
- China Life Multiplier Guardian Plus
- China Taiping i-Secure (II)
- HSBC Life Protect Advantage (II)
- Manulife Life Ready Plus (II)
- NTUC Income Star Secure