What is term life?
Term insurance is the simplest type of life insurance. It provides a payout to the insured’s family members upon death. Most term insurance embeds coverage for total permanent disability and terminal illness too.And there are options to add additional coverage for early to advanced critical illnesses, disability income and premium waivers too. Unlike whole life insurance, term insurance like the name suggests is somewhat temporary as it provides coverage only for a specific time frame that is determined at the point of purchase.READ MORE: Term Life Insurance vs Whole Life Insurance: Which Should You Get?Term insurance could also be a standalone cancer only plan, women illness insurance, disability income plan. Careshield life, Eldershield, Dependents’ protection scheme (DPS) and Home Protection Scheme (HPS) are all considered term insurance.Term insurance does not provide any cash values, or payouts if your policy expires before your insured event occurs.
Why do you need term insurance?
All types of life insurance helps to provide a replacement of income when the covered event is triggered. The sum assured is paid out in lump sum and would help replace the loss of active income stream.
Term life policies provide a payout should these events occur
- Death
- Terminal illness
- Total permanent disability
- Early to advance stages of critical illness
Best Term Life Plans
Widest list of medical conditions: Singlife, HSBC Life (Previously AXA)
Lifetime coverage for total permanent disability: Singlife and FWD
Comparing term life insurance
| Insurer | Coverage | Guaranteed increase in coverage at key life events or Convertible to other whole life plans | Total permanent disability coverage | No. of medical conditions covered (Optional coverage) | Unique features | Maximum term |
| AIA | Default: Death, Terminal illness, Terminal cancer Optional riders: TPD, CI, Premium waivers | Convertible to Whole life | TIll age 70 | 43 Advanced Stage | Provides additional default terminal cancer benefit. | Till 75; renewable to age 101 |
| Singlife | Default: Death, Terminal illness Optional riders: TPD, CI, ECI, Premium waivers, Multipay CI | Both options available | Wholelife | – 62 early and intermediate stage – 60 advanced stage – 6 recurrent – 27 special conditions | Multi-currency option | Till 99 option |
| Singlife SAF term | Default: Death, TPD Optional riders: CI, ECI, Disability income, Outpatient rider | Till age 65 | – 37 advanced stage – 10 early stage critical illnesses | Till age 65; renewable to age 70 | ||
| HSBC Life (Previously AXA) | Default: Death, Terminal illness Optional riders: CI, ECI, Premium waivers, Accident, Disability cash | Convertible to Whole life | Till age 70 | 132 | 100% premiums refund at the end of the term if no claims were made for term till 99 Limited pay option Multi-currency option | Till age 99 |
| China Life | Default: Death, TPD, Terminal illness Optional riders: NA | No option for both | Till age 65 | 38 | Till age 65 | |
| China Taiping | Default: Death Optional riders: Terminal illness, TPD, CI, ECI | Convertible to Whole life | Till age 65 | 5 common conditions | Option for 100% premiums refund at the end of the term if no claims were made | Till age 85 |
| Etiqa | Default: Death, TPD Optional riders: CI | Both options available | Till age 100 | 36 | Till age 100 | |
| FWD | Default: Death, Terminal illness Optional riders: TPD, CI, Premiums waivers | Convertible to Whole life | Till age 100 | 37 | Till age 70 | |
| Great Eastern | Default: Death, Terminal illness Optional riders: TPD, CI, ECI, Premium waivers | Convertibility option | Till age 65 | 121 | Till age 100 | |
| Income | Default: Death, TPD, Terminal illness Optional riders: CI, ECI, Daily hospital cash, Premium waivers | Till age 70 | – 32 early stage – 29 intermediate stage – 39 advanced stage | Till age last birthday 100 | ||
| Manulife | Default: Death, TPD (not all term plans), Terminal illness Optional riders: CI, Premium waivers, Accident Death | Convertibility option | Till age 70 | 36 | Quit smoking incentive | Till age 85 |
| Prudential | Default: Death, TPD, Terminal illness Optional riders: CI, ECI | Option to increase coverage at key milestones No convertibility option | Till age 70 | No information | Inflation option | Till age 100 |
| Tokio Marine | Default: Death, Terminal illness Optional riders: CI, ECI, Disability rider | Both options available | Till age 85 | 37 early stage 32 intermediate stage 39 advanced stage | Multi-currency option Minor disability coverage, ⅙ ADLs | Till age 85 |
Sources: CompareFirst, Advisory firm Ray Alliance financial advisors
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Key terms used in term 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. Premium term
Referring to the period of which you need to pay your premiums to get covered. Vast majority of term plans require you to pay for as long as your policy term, but HSBC Life Insurance provides a limited pay option. E.g. you could pay the premium for just 20 years and get covered till age 99.
2. Guaranteed renewability and non-guaranteed renewability
The first term refers to policies that will allow you to renew the policy without questions or changes in terms as long as you pay the premiums. Non-guaranteed insurance means the insurer could choose to stop coverage or change coverage terms even if you pay the premiums. The decision lies in both parties. So do look at this clause before you purchase a plan.
3. Decreasing term
This is a form of term insurance and it was designed to cover mortgage loans. As the remaining mortgage loan reduces over time, a decreasing term is used to cover the reducing mortgage sum as its sum assured reduces over time too. Note that the premiums however are not decreasing.
4. Level term
This form of term insurance provides a stable and constant amount of sum assured throughout the period of coverage.
Singaporeans have a life expectancy of 84.8 years.
As you age, the risk of becoming disabled may also increase.
5. Increasing term
This is the exact opposite of a decreasing term. Designed to help meet increasing insurance needs as inflation and lifestyle needs increase over time. Some policies allow you to add this feature and the sum assured will increase at 3% or at inflation rate each year without additional need to fill in medical questionnaires. Do note that the premiums are increasing.
6. Term to age
This refers to the period of insurance which is set to the insured’s age of choice. A common choice is “term to age 65”, which means the term plan expires when the person reaches age 65. And you will not be able to renew the plan beyond that age. This is decided at the point of purchase.
7. Fixed term
A fixed term insurance sets the period of insurance to the fixed number of years decided at the point of purchase. The premiums will be fixed for the same number of years too. There is usually an additional option for you to renew the insurance after the number of years as well without additional medical underwriting. Upon renewing at the end of the term, new premiums will be calculated based on your older age, which also means it would usually be a lot more expensive.
Who should consider
Term life insurance may not suit everyone, here are some common situations that may make term life policies more suitable.
Those with mortgage loans or other liabilities
Mortgage loans are a good problem, it means you have acquired an asset though you needed some leverage with a loan to make the purchase. When times are good, there should not be a problem with the repayments. Term insurance can help to protect you and your family from huge mortgage loans at cheap premiums.
As loans are generally payable to the maximum of age 65 in Singapore (Banks are not willing to lend beyond that age), that also means that you will not need the coverage beyond age 65. A mortgage term could come in 2 forms, decreasing term and level term (explained above).
For these two reasons, most people will prefer using a term insurance over other forms of life insurance to manage their mortgage risks.
Those with dependents who are financially dependent on them. E.g. kids, parents, siblings.
For those who are supporting their parents financially, and would like to ensure their parents have the same financial support even when you are no longer physically able to earn an income could choose to buy a term insurance to replace the loss of income up till a certain number of years. Similarly, those with young children could do the same.
Those who are on a budget
For those who prefer whole life insurance but cannot squeeze out the budget, they could opt for coverage via a term plan that is much cheaper.
Most term plans come with a guarantee convertible so you could convert to a permanent whole life plan in the future when the budget allows.
Those who are able to invest their money religiously and effectively
Some might have heard the term, “buy term and invest the rest”. That is a strategy where you buy a term plan to protect yourself until your investments reach a point where it matches the sum assured, you can then fully insure yourself. The essence of this has been lost in translation over the years, where people only buy term insurance and not invest the rest.
READ MORE: How much life insurance do you need? To figure out how much insurance you need.