What are they?
Life and health insurance provides coverage in case of death, disability or critical illness. By paying monthly premiums, you can ensure financial security for your beneficiaries in the event of your death or disability. Health insurance: Health insurance covers specified critical/major illnesses, accidents, hospitalisation, permanent disability or accidental dismemberment. It can be incorporated into a life insurance policy or added to a policy as a rider. Term Life: Term life insurance covers a specific time period in your life only. When the term expires, the insurance principal is forfeited and neither you nor your beneficiaries will receive any payment. Whole Life: Whole life insurance covers your entire life and pays your beneficiaries the insured principal in the event of your death. It usually also provides coverage for permanent disability up to a certain age. Riders: A rider is a supplementary plan that is attached to a basic insurance plan such as a whole life policy or endowment policy. It allows you to enjoy additional protection at a low cost. Examples of riders are medical and disability benefits, critical illnesses coverage and crisis waiver riders (premiums are waived if you suffer from a critical illness that is covered by the rider).
How do they work? Term: Term life insurance covers a specific time period in your life only, while whole life insurance, as the name suggests, is valid for your whole life. Term life policies can be valid for as short as 5 years or for longer periods of between 10 to 30 years. Coverage: As a policy holder, it is as if you are extending a loan to the insurance company, and it uses your regular premium payments to make investments. The pay-out to beneficiaries usually comprises a fixed amount and a variable component which depends on the performance of the insurance company's investments. To avoid under- or over-coverage, you should consult an insurance agent or financial planner to assess your needs comprehensively. Many insurers also have a built-in financial calculator on their website to help you calculate the amount of coverage you will need. Premium: Your premium is calculated by the insurance company, based on several risk factors including your age, occupation, health status and family medical history. The higher the risk you are at, the higher the premium. For example, an older person with an unstable job and poor health will pay a high premium. Some insurers give you the option of paying premiums monthly, quarterly, half-yearly or annually.
Cash Value: If you decide to terminate your life insurance policy, you may get the cash (or surrender) value, depending on whether the insurer offers this. Term life policies and riders do not offer cash value. Cash value is the excess payment over the cost of protection. The break-even point is usually after the 4th or 5th year, so if you surrender the whole life policy before then, you will not receive any cash value. The longer you hold on to the policy, the higher the cash value. Claims & Payment: Upon your death, beneficiaries have to file for claims with the insurer. Benefits can be paid in a lump sum or by monthly instalment, according to the contractual agreement of the policy.
How do I find the best deal? Term vs. Whole: You have to know what your expectations and objectives are. Whole life insurance is for you if you want lifetime protection and additional savings. If you are an older applicant or you only want short-term coverage, then a term policy suits your needs better. The premium for a whole life policy is higher than a term life policy. To avoid a high premium and still enjoy the same benefits, you can take out whole life as your basic policy and add on term insurance as a rider. Quotes: You should get quotations from different insurers as each has its own range of supplementary riders, method of calculating monthly premiums and policy packages. You need to know everything that is on offer in order to set up the best insurance plan. Terms & restrictions: Discuss the policy carefully with your insurance agent and make sure you understand all the policy details, such as conditions and restrictions. Service reputation / experience: To get the most out of your insurance plan, consider the reputation of your insurer in terms of products, service and experience. Otherwise you may have difficulty getting personal attention or in receiving your claims. Moreover, the variable component of the payout will depend on your insurer's experience and ability to make good investments.
Tax Implications
Life insurance proceeds are not subject to personal income tax. If your CPF contributions do not exceed S$5,000 in the year of assessment, you can claim up to 7% of the capital sum as tax relief from your personal income tax.
This document is published for general information only. It does not have any regard to any specific objective, financial situation or the particular needs of any specific person who may receive this document. This is also not intended to provide any recommendation or advice on personal investing or to be relied upon as financial planning advice. It is not designed as a substitute for professional advice. You may wish to seek advice from your financial advisor before making any decision. Any opinion, view or estimate presented is subject to change without notice and is made on a general basis and is not to be relied on by you other than for general information purposes. Any reference to any specific company, investment product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the company, investment product or asset class. While all reasonable care has been taken in preparing this document, no warranty whatsoever is given and no responsibility or liability is accepted for any loss arising directly or indirectly in connection with or as a result of any person acting on any information, opinion or statement expressed in this document.
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