BEST WHOLE LIFE INSURANCE POLICIES

What is a whole life policy?

All life insurance policies provide a lump sum payout in the event of death. You might have heard of phrases such as term life, whole life, and disability income insurance; these are all considered life insurance policies. The main difference between whole life insurance policies and the others, is that the whole life provides cash value after the third year.

Life insurance often provides coverage for total permanent disability and terminal illness as well as part of the default coverage together with death benefit. We call this payout amount the sum assured.

You can opt to include additional coverage such as critical illness and women’s illnesses. This can be done by adding riders to the main policy.

Whole life policies are more complex than term insurance because they provide cash values after a minimum fixed period. In most cases in Singapore, this happens in the third year after the policy starts.

Refer to our insurance map here on the different types of insurance policies and what they cover.

There are two types of whole life insurance—“participating” and “non-participating”. Participating means you share in the profits of the company’s fund. That’s paid as bonuses or dividends to your policy, the sum of which is not guaranteed because it depends on how the participating fund performs.

Non-participating, on the other hand, means a guaranteed cash value and/or claim benefit. But almost all whole life policies are participating, so let’s focus on this segment. 

Although it’s more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here we list the pros and cons of whole life insurance.

What is a whole life policy?

All life insurance policies provide a lump sum payout in the event of death. You might have heard of phrases such as term life, whole life, and disability income insurance; these are all considered life insurance policies. The main difference between whole life insurance policies and the others, is that the whole life provides cash value after the third year.Life insurance often provides coverage for total permanent disability and terminal illness as well as part of the default coverage together with death benefit. We call this payout amount the sum assured.You can opt to include additional coverage such as critical illness and women’s illnesses. This can be done by adding riders to the main policy.Whole life policies are more complex than term insurance because they provide cash values after a minimum fixed period. In most cases in Singapore, this happens in the third year after the policy starts.

Refer to our insurance map here on the different types of insurance policies and what they cover.

There are two types of whole life insurance—“participating” and “non-participating”. Participating means you share in the profits of the company’s fund. That’s paid as bonuses or dividends to your policy, the sum of which is not guaranteed because it depends on how the participating fund performs.Non-participating, on the other hand, means a guaranteed cash value and/or claim benefit. But almost all whole life policies are participating, so let’s focus on this segment. Although it’s more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here we list the pros and cons of whole life insurance.

Whole life policies provide a payout should these events occur

  • Death
  • Terminal illness
  • Total permanent disability
  • Early to advance stages of critical illness

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Widest list of medical conditions: AXA 
Lifetime coverage for total permanent disability: Aviva
Longest multiplier effect: AIA, Etiqa
Best to keep up with inflation*: Aviva, Tokio marine & Great Eastern
InsurerCoverageGuaranteed Increase coverage at key life eventsMultiplierTotal permanent disability coverageNo. of medical conditions coveredPayment term option
AIADefault Death TPD Optional riders CI ECI Premium waiversYesExpires at age 65 or 75 2 timesTll age 7015015,20 or 25 years
AvivaDefault Death Terminal illness Optional riders TPD CI ECI Premium waiversYesExpires at age 65, 70 or 75 Choice of 1, 2,3 and 4 times Non-guaranteed bonuses paid on top of sum assuredWholelife13210,15,20,25 years or to age 65
AXADefault Death Terminal illness TPD Optional riders CI ECI Disability income Premium waivers Unemployment benefitYesChoice of 65, 70 and 80 Choice of 1 to 5 timesTill age 8013810, 15, 20, 25 or 30 years
China LifeDefault Death Terminal illness TPD Optional riders Critical illness Premium waiversNoTill age 88 Choice of 1 to 4 timesTll age 650 (The plan with multiplier has no option for CI5, 10, 15, 20 or 25 years
China TaipingCurrently not available
EtiqaDefault Death Terminal illness TPD Optional riders CI Premium waiversYesTill age 65 or 80 Choice of 2 to 4 timesTll age 71375, 10, 15 or 20 years
Great EasternDefault Death Terminal illness TPD CI / ECI+CINoMultiple options, up till age 100 Non-guaranteed bonuses paid on top of sum assuredWholelife93Not available
HSBC lifeDefault Death Terminal illness TPD Optional riders CI ECI Premium waiversYesExpires at age 70 Choice of 2 to 5 timesTll age 7010510, 15, 20 or 25 years
ManulifeDefault Death Terminal illness TPDYesExpires at age 70 Choice of 1 to 5 timesTill 70 or 8012510, 15, 20, 25 or till 99 years
IncomeDefault Death Terminal illness TPD Accidental death 2x Optional riders CI ECI Premium waivers Hospital cashYes, but only for ridersChoice of 1 to 5 timesTll age 701215, 10, 15, 20, 25 or 30 years
PrudentialDefault Death Terminal illness TPD Optional riders CI ECIYesChoice of 2 to 5 timesTll age 70No information5 to 35 years
Tokio MarineYet to launch

Why buy whole life insurance?

  • Income replacement purposes
  • Legacy planning
  • Future-proofing for a child with a lifelong disability
  • Inheritance tax planning for assets in countries with such taxes such a U.S. stocks

Pros of whole life insurance

  • Guaranteed death coverage for life.
  • Cash values can help with retirement planning funds.
  • If you chose to pay your premiums in a limited timeframe, you can enjoy coverage without paying premiums in your retirement years. Payment options range from as short as a five-year period to as long as till you’re age 85.
  • The premium largely remains the same throughout the premium payment period.
  • The cash value account grows at a guaranteed rate.

Cons of whole life insurance

  • Higher premiums than term plan.
  • There is an opportunity cost to use the funds to invest.

All the options confusing you?

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Paricipating fund historical returns across all providers

Although the rate of return stated in the policy is a projection, the actual rate of returns depends on the investment performance of the participating fund. We thought you might be interested in the historical returns from 2005-2019:

Average20092010201120122013201420152016201720182019
AIA5.9813.17.22.59.816.51.44.910.5-0.69.5
Aviva5.4612.316.631.39.350.195.42-0.533.4512.59-3.7913.35
AXA4.844.114.624.159.98-3.247.42-2.1611.7-0.110.72
Great Eastern5.789.526.581.549.763.627.082.243.819.63-1.2411.02
Manulife6.4116.657.32-0.9410.65-.0.925.15-34.8212.7-1.211.9
NTUC Income5.31125.9-0.888.561.635.451.794.499.040.829.59
Prudential7.4723.47.20.2115.25.90.28.3210.63-2.1212.26
Tokio Marine6.3420.056.68-0.7210.572.356.42-0.153.4910.55-2.5113.05
Etiqa4.46-0.23.9710.99-3.3210.84

Sources: Investmentmoats, Straits Times and Business Times

Key terms used in whole life insurance

Insurance policies can be confusing to most people, but it’ll make more sense after we break down some key terms used in the contracts. Here are the key terms you should know

1. Cash values

Cash values in the policies are a result of profits from the insurance company’s participating fund. Your share of the profit is paid in the form of bonuses or dividends to your policy. The size of your share is determined by the sum assured of the policy.

Bonuses or dividends comprise of guaranteed and non-guaranteed components as they depend mainly on the investment performance of the insurer’s participating fund. When you make a claim, bonuses or dividends which have been declared will be paid in addition to the sum assured (in some cases it won’t).

2. Policy loan

You can also borrow money from the policy. Borrowing from your policy is referred to as a policy loan or automatic premium loan. The interest rates are about 5.5% p.a. on average. If you do not repay the premium loan before a claim or maturity of the policy, the payout sum will be reduced by the loan amount upon a claim or at maturity. That means, if you take a loan from the cash value, this loan amount is taken into account when the policy ends, or if you make a claim.

And if you surrender the policy, you can withdraw the entire cash value accumulated thus far in the policy. But then you’ll no longer have coverage.

3. Guaranteed death benefit and non-guaranteed death benefit

  • Guaranteed death benefit = base death benefit

This payout is the main benefit promised by the policy. In this example: $50,000

  • Total sum assured = base death benefit + additional cover (multiplier)

This refers to the coverage amount after taking into consideration the multiplier chosen.
In this example: $50,000 x 2 times multiplier = $100,000

  • Total death benefit = Total sum assured + non-guaranteed investment return

The non-guaranteed investment return increases with time, hence this helps to increase the total death benefit as years go by.
In this example: The total death benefit after 1 year would be $100,100 assuming 3.25% return or $100,250 assuming 4.75% return. The actual total death benefit will be determined by the actual investment returns.

4. Multipler

This term emerged sometime in 2015 and this feature is seen in most whole life policies offered. When you add a multiplier, it multiplies and increaes the underlying coverage. There are two ways a multiplier can work and they are illustrated here. 

Let’s understand this better with an actual example from Aviva:

“Base Cover” / Death benefit: $50,000

“Additional cover” /Multiplier effect of 2 times: $50,000

Total sum assured: $100,000

This means the death benefit is multiplied by 2 times and the actual coverage is $100,000.

Source: Aviva Ltd

However do note that the multiplier expires after a fixed age. In this example by Aviva, it expires after 31 years, at the age of 70. 

The images below are extracted to show you the effects before and after the multiplier expires.

Note that Aviva’s policies provides bonuses AND mutliplier in the total sum assured.

Source: Aviva ltd

The effect on the expiry shows that the total coverage amount falls from $127,505 at age 70 to $85,894 at age 75. While the illustration here does not show the calculations for ages inbetween, the coverage at age 71 will be closer to $50,000 + $27,505 = $77,505.

5. Premium term

This refers to the years in which premiums must be paid.  These days, you have the option to pay premiums for a shorter duration than the actual policy term. 

So in this example, the coverage is for life, and premiums are only paid for 20 years. In other words, you will still enjoy the coverage after 20 years even though you stopped paying for premiums.

Options for premium terms can be as short as 5 year or payable till age 65. This has to be decided at the point of purchase and you cannot change it afterwards.

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What sort of illnesses are covered?

To ensure that consumers don’t get confused by varying definitions of the same medical conditions used in the contracts, definitions of critical illnesses are standardised by theLife Insurance Association of Singapore (LIA). This means that all providers must follow the definitions used in the contracts for the key 37 critical illnesses, as defined by LIA.

However everyone will try to differentiate their products so insurers have since added additional medical conditions covered, to make their offerings more attractive. This includes certain early stage critical illnesses and women’s illnesses. The insurers are free to define these terms to what suits their policy design.

What is not covered

1. Pre-existing conditions

During the application, you are required to declare your current health condition. If there are any medical conditions that are chronic or ongoing, the insurer will likely exclude coverage for that medical condition. This process is called medical underwriting.

Some conditions that will be excluded or result in the entire application being declined:

  • Prediabetes and diabetes
  • Hypertension
  • High cholesterol
  • Breast cysts
  • Polycystic ovarian syndrome
  • Slipped disc

2. Treatment costs in hospital

Whole life plans with critical illness riders added on will provide a lump sum payout upon diagnosis of a critical illness listed in the policy.

In Singapore, we found that many people had the impression that life insurance payouts should be used to pay for treatment costs. This is inefficient, and not advisable.

This is because medical costs increase with time due to inflation. And since the whole life policy payout sum is fixed, this will not be adequate to cover medical costs later in life.

This does not mean that you can’t use the payout to pay for medical bills—but this should not be the intended use of the insurance policy, unless you are unable to get hospitalisation coverage.

In Malaysia, much medical insurance coverage is embedded in the life insurance policies themselves, so this principle does not apply.

3. Self-inflicted injuries

If there is an attempt to commit suicide and results in total permanent disability, the policy will not admit the claim. However since year 2002, all policies will cover death by suicide after 12 months of continuous coverage.

Why buy earlier than later

Reduce chances of exclusions

You want to be covered for as many things as possible, ruling out exclusions that could void your claims. As we age, we are more prone to diseases, so the odds of getting covered without any exclusions are lower.

Lower premiums

For whole life insurance, your premium rates are determined at the point of purchase, and will not increase after. It’s best to lock it in as early as possible.

How much life insurance is enough?

It all depends on your intentions. The most common purpose would be to replace income in the event of critical illness. One of the common critical illnesses in Singapore is cancer, and with treatment for cancer is so notoriously expensive, it could bankrupt you and your family.

Read more on the cost of cancer in Singapore

1. Determining the required sum to cover

Sample calculation: Assuming I earn $40,000 per year, and spend on average $30,000 per year, I would need to get covered for $200,000 for critical illness.

Details of calculation: $30,000 of yearly expenses x 5 years of estimated duration a person needs to recover fully = $200,000

Try this calculator to determine your insurance needs.

2. Budget

Knowing how much you should be covered is the first bit. Premiums would depend on a few factors: sum assured, age of the insured person, gender and smoker status. Get your insurance quotations based on your required sum needed and check if the premiums are within your budget. 

3. What if the premiums are too expensive?

  • Consider reducing the sum assured
  • Consider term insurance instead or a combination of both term and whole life insurance 
  • Increasing the duration of the premium payment term

Singaporeans have a life expectancy of 84.8 years.

As you age, the risk of becoming disabled may also increase.

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What happens to my policy if I live till 100?

If the term of the policy is for life, the policy will continue for as long as you live. If the policy term is till 99 or 100 years old, the policy will terminate and the insurer will pay you the sum assured plus any additional bonuses, deducting any premium loans.

What happens if an insurer collapses?

Singapore has an organisation called the Singapore Deposit Insurance Corporation Limited (SDIC). Under the SDIC, the Policy Owners’ Protection (PPF) Scheme has been set up to protect policy owners, in the event of a life or general insurer going bust.

This is pretty much an “insurance policy” to protect life insurance policies. The insurers pay a levy for each insurance policy they issue.

Entitlement under the PPF Scheme for Life Insurance Policies:

Individual life and voluntary group life policies (with the exception of annuities): Cap of S$500,000 for the aggregated guaranteed sum assured and S$100,000 for aggregated guaranteed surrender value per life assured per insurer.​

Source: SDIC

Back to the Aviva example: In the event the insurer fails, the policy is protected up to a sum assured of $50,000 (guaranteed death benefit) plus any bonuses declared from previous years.

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