Whole Life Insurance: Life-Long Protection with Cash-Value Investment

To many, understanding insurance is a whole new ball game

Life insurance is for those who want to protect their loved ones with financial support in the event of death or permanent disability.
There are many types of life insurance, and broadly they can either be term or whole life bundled products. Term products’ coverage lasts for a fixed amount of time and typically have lower premiums. Bundled products include insurance + an additional component (e.g., investment component) and generally are more expensive.
Financial experts will often say that the sum assured in your life policy should come to 10 to 12 times your annual income, but what you need will vary depending on many personal and financial factors, so speak with a trusted professional advisor.

Not everybody needs life insurance, but if you wish to protect loved ones (who may be reliant on your income) with financial support in the event of your death or permanent disability, then life insurance could be the answer for you. There are two main types of life insurance – term and whole life. The main differences between the two are:

1) How long your policy will cover you.

2) The compensation you receive if you do not make a claim by the end of the policy life.

3) Premium payment term. Term is always pay-as-you-go, whereas Whole Life has the option for a limited payment term, meaning that coverage may last for a period much longer than you were paying premiums for.

Whole Life Insurance

The primary objective of whole life insurance is to provide an insurance plus investment policy. This policy type, which includes a cash-value component, offers life-long protection (as long as the premiums are paid) and is usually more expensive than term insurance. The primary advantage is that termination or surrender of your policy, even before the tenure is up, may still entitle you to compensation. Note that the surrender cash value will be lower than the death benefit payout (the money paid out to your beneficiaries upon death).

By choosing whole life insurance, you should be committing to a long-term decision, as early termination is still likely to result in financial loss.

Coverage

Whole life insurance will cover death and, with appropriate riders, total and permanent disability and selected major illnesses. Regarding what is defined as a disability, this will vary between products and insurers. Typical use cases include:

Pay off a mortgage
Pay for your funeral
Protect your family’s level of income
Provide for your dependents until they come of age

Not All Whole Life Insurance Is the Same

Whole life insurance policies can be participating or non-participating:

Participating

Participating policies earn a share of the insurance company’s participating fund’s profits, which are paid to your policy in the form of bonuses or dividends. These benefits are declared each year and depend on the fund’s performance and are therefore not guaranteed.
When making a claim, any declared benefits will be paid on top of the guaranteed sum
Cash value consists of both guaranteed and non-guaranteed bonuses
You can take out a policy loan against your policy’s cash value. The loan will likely come with high-interest charges. The loan’s outstanding balance will be counterbalanced by any cash value or claim payout
Non-guaranteed benefits mean that you will bear the investment risk

Non-Participating

Unlike participating policies, you are not entitled to any bonuses or dividends
The cash value consists of guaranteed benefits only
You can take out a policy loan against your policy’s cash value. The loan will likely come with high-interest charges. The loan's outstanding balance will be counterbalanced by any cash value or claim payout
No investment risk, as the benefits are guaranteed

Example (Using the Term Life Example)

“30-year-old Lee wants to protect his family in the unfortunate event of his early death, so he takes out a $500,000 10-year term life insurance policy with a premium of $50 per month.”

Under whole life, protection is lifelong
However, the premiums would usually be higher

“If Lee were to die within the 10-year term, his beneficiaries would receive a policy payout of $500,000. However, they would receive nothing if Lee were to die after the 10-year term is up.”

Whole life - death benefit is paid out throughout the coverage

“If Lee reaches 40 and decides he wishes to renew his term life policy, he should expect to pay higher premiums than when he was 30 (as he is now closer to the average life expectancy).”

Your whole life insurance premiums can either be fixed at the point of purchase (and should not increase as you get older) or they may have stepped premiums, meaning they gradually increase per year

In Singapore, whole life insurance premiums are usually fixed at the point of purchase and should not increase as you get older. Additionally, there is the option to pay for a limited time only. This means the cover lasts for life, but the premiums are compressed and paid up over a period of time (i.e. 20 years). This means an individual is only liable during their economic years. Few people want to pay additional bills when they're retired and in their 60s!

“It should be noted that if Lee were to have been diagnosed with, and survived, a terminal illness within that original 10-year term, then he is unlikely to be eligible for renewal. If this is something that you wish to avoid in your term life policy, look out for a policy with guaranteed re-insurability (without proof required).”

Whole life policies are intended for death coverage (or for surrender values at old age), so coverage will continue even after the diagnosis of a critical illness (or "dread disease") unless there is a specific clause in the policy that would lead to a payout and the termination of the policy. There may be critical illness "riders" alongside the policy as well. Everything is subject to terms and conditions, so speaking with an agent for specific details about individual policies is essential!

Can I Attach Riders?

Yes, you can! As to which riders can be attached, this will vary from policy to policy.

Definition of a rider = additional benefit added to an insurance policy (usually at a cost)

WHOLE LIFE INSURANCE. COMPLETED. ✅

Sources:

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