Did you know there are three main types of life insurance policies in Singapore? They are:
- Term Life Insurance: The cheapest and most basic form of life insurance. It has a fixed expiry date – usually five to forty years, or up to a specified age. It does not have any cash benefit and pays out upon death or disability. This type of insurance is used purely for protection purposes.
- Endowment and Whole Life Insurance: Life insurance with a savings component. The savings part will be paid out at a fixed maturity date and may have a guaranteed and non-guaranteed portion depending on the specific policy.
- Investment-Linked Insurance: Life insurance with an investment component. Premiums are invested into mutual funds, and some of these units are then sold each year to cover insurance costs and other policy expenses. Returns are tracked according to the funds’ performance and there is no guaranteed portion.
Understanding these key differences will help you identify the right type of life insurance policy for your needs.
It helps to know exactly what you want covered in your life insurance policy. Is it only for protection in case of death or disability or illness? Or do you want to save for your retirement or your child’s education? When would you need the funds? What is the target amount you need to achieve your objective?
Combining life insurance coverage with wealth-accumulation goals via an investment-linked policy may seem like a good idea. After all, you get the best of both worlds plus extra convenience.
However, the mutual funds you could invest in through an investment-linked insurance policy are likely also available separately as unit trusts. Depending on the specific fund or policy, it may turn out to be cheaper from a fees perspective to buy a term product for insurance protection and invest the premium difference directly via unit trusts instead. So, make sure you understand the pros and cons of each available option before making your decision.
Always review and prioritise your plans based on changes in your life stages as your objectives will change, depending on whether you are young and single or married with children.
Consider the level of coverage that’s best for your current needs. Being over-insured is better than being under-insured, but there are opportunity costs involved – could that extra money going towards premiums be used more productively?
Don’t make the mistake of getting into a policy without understanding how the policy works and how it can meet your needs. Understand the policy’s features, risks, returns and limitations before making a commitment.
Be sure to shop around and compare policies if you are unsure. While there are only a few broad categories of life insurance policies, there can be many differences between policies and insurers.
Everyone’s life and goals are unique. While life insurance is undoubtedly important, you should always get one tailored to your individual needs. Now that you’ve learned which mistakes to avoid, you are better equipped to get a policy that is best for you.
Whether it’s wealth-accumulation or making sure your loved ones are protected, Standard Chartered is here to help you achieve your goals. The earlier you get started on your journey, the better. Speak to one of our trusted financial advisers today to learn more about how we can help you.
This article is brought to you by Standard Chartered Bank (Singapore) Limited. All information provided is for informational purposes only.