When embarking on insurance planning, you will encounter terms like whole life coverage or term insurance and may be unsure which plan best suits your needs.

Whole life plans are often marketed aggressively, with insurance advisers emphasising the necessity of permanent life coverage. However, at Havend, we strongly advocate term insurance in most cases, and this article explains the reasons why.

Income Protection is a Temporary Need

Your most crucial financial asset is your ability to earn an income. Your income allows you to meet current obligations and build your future, while you aim for financial independence. Therefore, protecting your working income is essential for your wealth building because a loss of this income can derail your financial plan. The following are some key events that could result in a permanent or long-term loss of your income:

• Premature death of the sole breadwinner
• Long-term disability
• Medical crisis (such as being diagnosed with a critical illness)

The primary role of life insurance in your financial plan is to protect against these income-loss events. But is there a need for permanent life coverage for these events?

The answer is no. The need to protect against income loss is temporary. Once you achieve financial independence, you no longer need to rely on a working income, thus eliminating the need for income protection.

You may ask, what if these events occur after my retirement? In such cases, you would still require hospitalisation and long-term care insurance plans to cover your medical expenses and caregiving costs in cases of severe disability. Therefore, hospitalisation and long-term care insurance plans are the plans you need to cover for your entire lifetime. For income protection, a whole life insurance plan is absolutely unnecessary.

Balancing Sufficiency of Coverage with Cost

At Havend, we stress that insurance is a support plan to your main wealth accumulation plan and should be a tool for protection only—which is a necessary expense. Since it is an expense, we encourage our clients to spend as little as possible while ensuring adequate coverage. Over-insuring restricts your ability to save and invest, while under-insuring can lead to financial distress during a crisis.

Whole life plans are also costly, typically about ten times more than term insurance for the same coverage amount. Due to these high costs, fully covering your protection needs with whole life plans is difficult, often leading to overpaying while being underinsured. The most cost-effective way to ensure adequate coverage is through term insurance.

In Figure 1 below, we have done a comparison between a term plan and a whole life plan for the same coverage amount of $500,000 (Death/Total Permanent Disability) from the same company.

Figure 1: A Comparison Between a Term Plan and a Whole Life Plan for the Same Coverage Amount

Can you see the stark difference in annual premiums for both term and whole life insurance plans? It is much more affordable to opt for term insurance plans.

Is There a Place for Whole Life Plans?

Certain lifetime needs warrant protection, such as covering medical expenses from a medical crisis. Typically, an integrated shield plan (IP) covers most of such costs. However, if you prefer the option to seek alternative treatments not covered by the IP, a lifetime critical illness plan might be necessary to meet your healthcare expectations.

It is also possible to structure a term insurance plan to provide for your lifetime coverage, specifically up to age 99. This can be a more cost-effective solution for you, as compared to a traditional whole life insurance plan, particularly if the primary need is for protection rather than cash value accumulation.

Considerations for Lifetime Coverage: Using a Term Till 99 Plan

• Purpose: If your primary goal is to secure lifetime protection and you do not need the cash value feature, a term till 99 can be more cost-effective.
• Budget: Term till 99 insurance premiums is typically lower, making it easier for you to maintain it over the long term.
• Focus on Protection: Term insurance is straightforward. You pay premiums to maintain the protection benefits during the term of the plan.

The Bottom Line

While whole life insurance offers permanent coverage, it often comes at a high cost, making it less practical for income protection, which is typically a temporary need. Term insurance provides a more cost-effective solution, ensuring sufficient coverage without hindering your ability to save and invest. Whole life plans may still have a place in addressing specific lifetime needs, particularly in healthcare – however, this is on a case-by-case basis. Therefore, for most income protection scenarios, term insurance is still the recommended choice.

Do reach out to us for a complimentary InsureWell Assessment to find out if you are adequately covered with your existing insurance or overpaying for inadequate coverage. We promise to tell you if you have enough insurance and if that is the case, you need not purchase any insurance from us.

This is an original article written by David Law, Insurance Specialist at Havend.

At Havend, if we are found to have oversold you, we have put in place a Money Back Guarantee (MBG) scheme, so you can trust that we will always prioritise your interests first. Unprecedented in Singapore, learn more about our Money Back Guarantee scheme here.