Insurance : Comparing term life insurance and wholelife insurance

In Singapore, there are a few low cost term insurance plans that may be worth looking. You may want to look at some of the policies available for SAFRA members or NTUC members. Although these are group policies and it requires you to be a member of the respective organisations before you can take up these policies, the total cost (premium + membership) is still comparatively cheap.

Take SAFRA Living Care insurance policy for example. The premium is $289 for a 35 year old male with a sum insured of $100,000. For an equivalent wholelife insurance policy, you will be looking at an annual premium rate that is a few times more than this.

So, how do you decide whether it is a better option to go for term life insurance or wholelife insurance? As explained in my earlier postings, the purpose of insurance is to mitigate or transfer risk. Taking a wholelife insurance will normally introduce a new risk - the risk that you may not get back the cash value that you desire.

Let's assume that annual premium for the equivalent wholelife policy for the 35 year old male is $2000. With a projected return of 5.25% per annum (the best estimate for long term investment return rate set by Life Insurance Association, Singapore) for 25 years, the projected return will be around $70k to $90k depending on your life assurance cost and other insurance expenses. However, please note that this return is not guaranteed and hence it carries an unknown risk.

Now, let's do the same with SAFRA living care policy (Refer to SAFRA rates at ). It will cost the same man a total premium of ($289x10 + $416x10 + $808x5) = $11,090 for 25 years. That's an average of $445 per year. Assume that he puts the difference in premium that he saves ($2000 - $445) in CPF special account, the guaranteed return of 4% for CPF SA will earn him $65k after 25 years. The $65k comes risk-free. Of course, if he is less risk averse, he could improve his return by investing some money in other financial products such as stocks or high-yield bonds. Similarly, he can increase his sum insured by paying more premium and reducing the investment return.

From the above example, you can see that term insurance gives you more control over your finances as well as the amount of protection that you need. In a way, it allows you to manage your risk more effectively.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.