Term Life vs Whole Life Insurance: Which Should You Get?

Almost everyone considers life insurance essential for financial security, especially for those who depend on you. Choosing the right policy can be daunting, as it is a long-term commitment that requires careful planning and research.

If you’re considering a life insurance plan in Singapore, it’s crucial to understand what each policy offers.

What is life insurance?

Life insurance is a contract between you and an insurance company. In exchange for paying regular premiums, the insurer provides a payout in the event of your death, permanent disability, or critical illness.

Life insurance plans in Singapore are often tailored to your financial goals, income, and lifestyle. Below is a clear overview of term life insurance and whole life insurance.

Term life insurance vs Whole life insurance

	Whole Life Insurance	Term Life Insurance
Cost	You pay a higher annual premium over an agreed period (e.g. 25 years) Often the pricier option	You pay a lower annual premium over an agreed period (e.g. 25 years) Typically the cheaper option, in terms of sum assured per dollar.
Coverage period	Typically covers you up to the age of 100 (or until surrender of policy)	Covers you for the length of your choice decided at the start of the plan e.g., till age 70.
Returns	Has cash value, hence you may receive a payout when you terminate the plan.	No cash value
Types of insurance policies	Participating (par) Non-participating (non-par) Investment-linked	Term life Standalone critical illness term

What is whole life insurance?

A whole life insurance policy provides coverage for death, total permanent disability, and critical illness. Participating (par) plans offer non-guaranteed bonuses in addition to your sum assured, as a portion of your premium is invested to generate returns.

You pay premiums over a fixed period, often 20 years. After that, coverage continues until age 100 or when you choose to surrender your policy.

Your family receives a guaranteed payout if:

You pass away, become permanently disabled, or suffer a critical illness.
You surrender the policy.

Early surrender usually results in a loss of coverage and potential financial loss. However, surrendering your policy later in retirement can supplement your income. Starting a whole life plan before age 40 may yield a significant return over time.

What is term life insurance?

Term life insurance covers you for a fixed period or as long as you pay premiums. It is typically more affordable but does not accumulate cash value.

Term policies can complement a whole life plan to cover specific financial responsibilities, like children’s education or a mortgage.

Most Singaporeans already have basic term life coverage under the Dependants’ Protection Scheme (DPS), available from age 21 to 65 with a maximum sum assured of S$70,000.

The downside is clear, term life insurance does not return any payout, no matter how much you have paid. This makes it more affordable but limited in long-term benefits.

Is a whole life or term life policy better for me?

Here are some considerations:

Period of coverage

Whole life policies cover you for life, making them ideal if you want lifelong security.
Term life policies suit shorter coverage periods, such as while raising children or paying off a home loan.

Budget

Term life insurance has lower premiums, fitting smaller budgets.
Whole life insurance is pricier but builds cash value, which you may withdraw in the future.

Retirement planning

If you already invest for retirement, term insurance allows you to channel savings into investments.
If you lack a financial plan, a whole life policy ensures a payout to cover living expenses.

Total cost over time

Consider the total premiums paid over the policy term to assess value.

Here’s an example of a 21-year-old female with a need to insure herself for early to advanced stages of critical illness for the amount of S$300,000:

Details	Term life	Whole life
Annual premium	S$1,000	S$2,800
Coverage period	Till age 70, 59 years	Till age 100, 79 years
Total premium payable	S$59,000 (S$1,000 x 59)	S$70,000 (S$2,800 x 25)
Cash value at age 70	S$0	S$190,000
Option to continue coverage after 70	No	Yes

Choosing between term life and whole life insurance depends on your budget, coverage needs, and long-term financial goals.

Term life insurance offers affordable protection for a fixed period, making it ideal for families or mortgage coverage.

Whole life insurance provides lifelong coverage and builds cash value, serving as both protection and a long-term financial asset.

For Singaporeans, the best approach often combines both, securing essential coverage with a term policy while considering a whole life plan for savings and retirement planning.

To determine the right coverage for your needs, use an insurance calculator, it helps you estimate the amount of protection required based on your age, financial goals, and family situation.

Assess your finances, plan for the future, and consult a trusted advisor to choose a policy that provides security and peace of mind for you and your loved ones.