A Comprehensive Guide to Life Insurance
Singapore life insurance is a crucial source of financial security that everyone should take out in order to protect their families, their loved ones, and their memories. While most of us recognize that life insurance has a crucial role to play however, the different jargon and types of insurance can sometimes make this a complex subject to navigate. In this comprehensive guide then, you’ll learn everything you need to know in order to make a smart choice that will protect your loved ones and give you peace of mind.
Why is Life Insurance Important?
There are a lot of misunderstandings with regards to life insurance and it would seem that a large portion of the population don’t really know what it’s for or whether they need it. Why would you need a pay out when you’re no longer around?
Of course, life insurance isn’t for you, but rather the ones you leave behind. Life insurance pays out to your family or other financial dependents once you die. The main reason that someone might take out life insurance, is if they are the ‘bread winner’ of the household and worry that when they’re gone their family might not be able to support their current standard of living. Without life insurance, your loved ones may be forced to move home, or your children could have to stay with a nanny. Even if you aren’t the sole breadwinner, life insurance can help give your partner more time to spend with the children – ensuring that they don’t need to support the family both emotionally and financially without you.
But it’s not just parents who can take out life insurance. Often, single individuals will still choose to take out life insurance. The reason for this is often to help cover costs such as funeral costs (which can be very expensive) and to make life a little easier during the mourning period.
Life Insurance Singapore for the Young
The average age of someone considering life insurance is normally mid-twenties to thirties. Often, they will then take out a fixed-term life insurance policy, or a decreasing term life insurance policy – which we will explain in a subsequent section. As mentioned, this is to protect their family while they are dependent on them.
However ,this isn’t the only context in which to use life insurance and different types can be useful for different situations. At the same time it is also quite common for people to take out what is known as ‘whole of life insurance’ which is valid until they die. Likewise some parents will take out life insurance policies for their children even. When these demographics have no one relying on them financially, and are statistically likely to have a long life ahead, what is the purpose of the life insurance?
There are many good reasons to take out life insurance for both the very young and the very old. First of all, this is true because life insurance doesn’t only cover living expenses – it also covers funeral expenses and costs such as gravestones. These are very expensive costs and they can be crippling financially if you are unprepared for a parent or a surviving partner meaning that life insurance can really help.
At the same time, you might also view life insurance as a gift. Of course, on the one hand it means that should the worst happen to you, your family will at least have some financial compensation. It won’t bring you back no, but it will mean that they have one last very helpful gift from you. If you don’t have many savings when you are older but you want to leave something to your grandchildren then this is a good way to do so with whole of life insurance.
Life insurance can also be an investment. For a parent of a young child it again can provide some financial support during what will be one of the most painful and difficult times in their lives. However, at the same time it also can provide the child with pay outs – both during the term and when it is over. If you use life assurance, which we shall discuss in a later section of this guide, then this payout can sometimes be quite large.
If you have the finance then, and if you are a ‘forward planning’ kind of person, then life insurance can benefit you no matter your age or situation.
Types of Life Insurance
Once you have decided that life insurance is right for you, the next step is to choose the type of life insurance that is best suited to your circumstances. This can be a daunting task considering the different types of life insurance that exist. Below, you will find a useful guide to the most common types and terms.
Whole Life Insurance
Whole life insurance is probably the simplest kind of life insurance to understand – and the name says it all really. With whole life insurance, you will pay permanently into the policy right up until the day you die at which point it will be guaranteed to pay out for your family. This means you’ll always have the provision there for your family no matter what happens, and that it will always be the same price, but it also means you’ll never see the money yourself.
Fixed Term Life Insurance
A fixed term policy however is a more normal kind of life insurance. Here you agree to pay your policy for a fixed amount of time, at which point you will then have the option to renew it or to take a pay out. Of course, there’s a chance the amount will go up, but this way you can opt to cancel the policy more easily once you have fewer financial dependents.
Increasing Term Life Insurance
With increasing term life insurance, you pay into a policy that increases in value over time. This is useful for those who are older as it means the amount that pays out increases as your chances of leaving get higher. This is an expensive option, but one that will suit some people who want to make sure their family are cared for.
Decreasing Term Life Insurance
This is a more common form of life insurance that decreases in value. Often here the policy will be designed to decrease as the amount left to pay on the mortgage decreases, ensuring that you’re paying the minimum amount possible to ensure your family can remain in their home once you’re gone.
Life assurance however is more like term life insurance in that it gives you more of an investment opportunity. Here though, there is not just one payment that you receive, but two sums. One of these will be a ‘guaranteed sum’ which is a fixed rate pay out, but the other is a non-guaranteed ‘investment’ sum. This latter amount is created by the assurance company investing your payments, and the uncertainty in the growth then comes from a small element of risk associated with any investment. However, this way you are likely to possibly get a larger amount back on your initial payments.
At the same time life assurance can offer some other useful advantages related to the nature of the investment. For example, the policy holder can receive bonuses or payouts from their investments, just as they might if they invested in stocks and shares, or in bonds themselves. Alternatively, these payments can be added to the overall payout.
If the policy holder then dies, the survivors will subsequently be offered either the guaranteed sum or the investment depending on which is higher. If the term ends before the policy holder dies, then the family will receive both the initial investment, and an amount of the interest that was generated combined. It is necessary for the guaranteed pay out to exist as this means that you won’t be leaving your family in the lurch as a result of a bad investment, which sets it apart from simply investing in something yourself as your form of insurance. At the same time though, if you choose a fixed term and should out-live it, you then get your investment back just as you otherwise would.
Being Savvy With Life Insurance
Life insurance prices vary from one broker to the next, and depending on various other factors. Likewise, the right deal can make a big difference to your eventual pay outs and terms. Here are some things to consider when taking out this type of insurance that can save you money.
Know What You Need: First of all, before you can even really think about your life insurance you need to know what kind of life insurance it is that you want. The main distinction here you need to decide on is how long you need it for. You can then choose from the types of insurance we have discussed, and make sure you pick the right one for your particular circumstances – without paying more than you need to.
Another point to consider is how the money will be paid out to your surviving family members. This can either be in the form of a lump sum or a salary, and which you choose will depend on how whether you want your partner to have the money upfront to invest, or you’d rather they didn’t have to worry about things like that at this difficult point. Consider tax, the costs of financial advice, and the costs of funerals. You can also often find combination deals.
Shop around: Now you know what kind of life insurance you want (there are others to consider too), you should shop around and compare prices. Make sure to call up and to discuss the cost of the insurance in your specific circumstances and whether or not you can get any money off. Bear in mind that this isn’t a fixed rate but varies from case to case depending on the kind of insurance you want, and on your circumstances etc. One company might provide the best rate for your friend, but not be suited to your particular situation.
Be Safe: You can also improve the cost of your life insurance by improving your own habits, and this is something that can of course have other benefits as well – your family would far rather you were alive with them! Little things like quitting smoking and drinking can help to improve the cost of your life insurance and improve your health and longevity. If life insurance prices are sky high, try changing your details to see what you would be offered if you made those healthy changes.
Save: One more precaution is not to rely solely on life insurance. Have your own ‘emergency fund’ that you pay into as well, and make sure your partner knows about it and can access it should the worst happen. It’s always wise to have contingency plans.
Getting Life Insurance
There are a number of great companies in Singapore that provide excellent life insurance coverage and deals. Our top picks are:
AIA Secure Flexi Term
With premiums as low as S$1.36 a day for S$1 million coverage, AIA provide you with flexibility to draw up a protection plan just right for your requirement with inexpensive options which promises to safeguard your loved ones’ future.
This company offers death and permanent disability coverage and offers plans ranging from 5 to 20 years (or until you reach 65). It is 10-25% cheaper than the market average. Coverage ranges from S$300,000 to S$400,000.
Direct-Etiqa offers 5 year, 20 year, ad up-to-65 life insurance plans, as well as TPD. Starting from S$50,000 up to S$400,000. The premiums range from 20-40% below the market average.
With many factors to choose from, the best way to get the perfect deal for you, is to get in touch via phone or email. You can call or email us, and one of our agents will help to find you a deal that will save you money while making sure your family is in safe hands should the worst happen.
Life insurance is something you simply can’t afford to put off, so get in touch today.
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