There are three main types of life insurance policies in Singapore:
- Term life insurance: The cheapest and most basic form of life insurance. It has a fixed expiry date — usually five to 40 years, or up to a specified age. It has no cash benefit and pays out upon death or disability. You take out this type of life policy purely for protection purposes.
- Endowment and whole life insurance: Life insurance with a savings component. The savings part will pay out at a fixed maturity date and may have a guaranteed and non-guaranteed portion, depending on the specific policy.
- Investment-linked insurance: Life insurance with an investment component. Premiums are invested into mutual funds, and some of these units are then sold each year to cover insurance costs and other policy expenses. Returns are tracked according to the funds’ performance, and there is no guaranteed portion.
Understanding these key differences will help you identify the right type of life insurance policy for your needs.
It helps to know exactly what you want your life policy to cover. Speak to your loved ones before deciding on the best life insurance policy in Singapore for you, and decide what coverage you want and need. It may, for example, include protection in case of death, disability, or illness.
There is also the matter of when you want to receive the funds. If you are saving for your retirement or for your children’s education, then you may want to receive your funds earlier. Or, you may just want it to be paid out upon your death.
Combining life insurance coverage with wealth-accumulation goals using an investment-linked policy may seem like a good idea. After all, you get the best of both worlds. However, it may not always be the best option.
The mutual funds you could invest in through an investment-linked insurance policy are likely also available separately as unit trusts. Depending on the specific fund or policy, it may turn out to be cheaper from a fees perspective to buy a term product for insurance protection and invest the premium difference directly into unit trusts instead. Make sure you understand the investment-linked policy pros and cons and those of unit trusts before making your decision. The following are a few to consider.
Investment-linked policy pros and cons
Pros
- Provides life insurance coverage.
- Allows for flexibility to adjust your investment and insurance coverage when you need to.
Cons
- Investing your premiums into the sub-fund (a professionally managed investment portfolio) doesn’t guarantee a return.
- Units may not cover the rising cost of insurance as you get older.
Unit trusts
Pros
- There are no insurance-related fees.
- You can time your investment separate from your insurance policy.
Cons
- Doesn’t include insurance coverage.
- There is no guaranteed return on investment.
All in all, if you’re making the decision purely from an investment perspective, what’s most important is investing in the right fund. Invest in the wrong one, and the performance of your investment will suffer.
Always review and prioritise your plans based on changes in your life stages. Over time, your objectives will change, whether you’re younger or older, you’re married or single, or you have children or not. As you transition from one life stage to the next, you are likely to require a different level of coverage to suit whatever your current needs. Riders are options that offer additional coverage; however, there are many riders available, and you want to make sure you get the right ones to meet your specific needs. A popular rider is Total and Permanent Disability protection, which provides coverage for unexpected costs arising from a disability.
When you’re considering coverage, being overinsured is better than being underinsured, but there are opportunity costs involved; you may be paying for ‘features’ that you don’t need. Could you more productively use that extra money that you’re putting towards premiums? For instance, it may be worth it to consider using that money to invest in a different product.
When you purchase life insurance, it’s important to make sure you have properly set up who will own the policy and who its nominees and beneficiaries will be. This proper setup, in turn, helps ensure the policy will achieve its planned purpose. Ask yourself the following questions:
- Will the policy be in your name?
- Will you use a trust?
- Who will the policy’s beneficiaries be (both primary and contingent)?
- Who is the nominee (person appointed by the policyholder to manage finances after his or her death)?
- Is the beneficiary a minor?
- Will you have multiple beneficiaries?
- How much will each beneficiary receive?
It’s also important to note that if you have a will and one of your policy beneficiaries is listed in it, that doesn’t necessarily mean that he or she will receive the proceeds. This doesn’t mean you shouldn’t include your policy in your will; it’s beneficial for anyone dealing with a will to know the assets of the deceased. However, it does further emphasise the importance of setting up your policy properly from the beginning and updating it along the way. Doing so will save your family a lot of time and hassle when the time comes for the life insurance policy to pay out.
Don’t jump into a life policy without understanding how it works and how it can meet your needs. Often, under emotional circumstances, such as times of intense stress at one extreme or happiness at the other, people will buy something on impulse. Or they may act out of fear that they’re missing out on something they should have.
Before you act hastily and commit, it’s important to take your time and make sure you understand a policy’s features, risks, returns and limitations. If you’re unsure, shop around and compare policies. Although only a few broad categories of life insurance policies exist, the differences from policy to policy and from insurer to insurer can vary widely.
So, you’ve done all of your research and have a clear idea of what you’d like to achieve with your life insurance. And though we’ve already urged you not to make an impulse purchase, it’s equally important that you don’t wait too long to buy your policy. With life insurance, the older you are, the more expensive purchasing a policy can become. By planning for and purchasing life insurance at a younger age, you’re more likely to save a substantial amount of money in the long run.
Always get a tailored plan
As we’ve learned, it’s easy to make mistakes when buying life insurance in Singapore. That’s why it’s key to understand the finer details of each of the policies available and the pros and cons of each.
Everyone’s life and goals are unique. Your insurance policy should cater to these unique needs. Now that you know which mistakes to avoid and how to avoid them, you’re in a better position to purchase a policy that truly suits you.
Whether your goal is to accumulate wealth or ensure that your loved ones are protected in the long term, Standard Chartered is here to help you achieve your objectives. The earlier you get started on this journey, the better. Speak to one of our trusted financial advisers today to learn more about how we can help you.
This article is brought to you by Standard Chartered Bank (Singapore) Limited. All information provided is for informational purposes only.
