One moment, life is running smoothly, maybe a minor hiccup here or there but otherwise, it’s just smooth sailing. And then suddenly, one cruel act of fate can instantly turn our entire existence upside down. Such is life and we can do nothing but be prepared for when the worst might strike. Life insurance is one effective way to be be financially prepared for the uncertainties of the journey of life.
What is Life Insurance?
Life insurance is basically a financial safety net which has been designed with the purpose of protecting you and your family against any unforeseen personal losses like permanent / total disability, critical illnesses or death. In case the insured passes away then the insurance company is required to provide the beneficiaries with a lump sum payment known as the Death Benefit.
In order to purchase an insurance policy, one is required to pay premiums. The flexibility of premium payment differs with each policy and depends on various factors like your age, your health status, family history, etc. The cost of premiums can also differ if an individual is susceptible to any serious / critical illness like cancer, heart disease, industrial accidents, etc.
Why do you need Life Insurance?
Life insurance is necessary for a variety of reasons.
- While money can never replace a person, it can help ease the financial burden in already difficult times of dealing with a personal loss.
- Life insurance can help contribute to your peace of mind when you know that your loved ones will be well provided for in case the unforeseen happens.
- Being unpredictable is one of the defining characteristics of life. Hence, all the more reason to safeguard ourselves and our loved ones against whatever life might have in store for us.
- When it comes to improving your credit score, a life insurance policy can be considered an asset. Timely premium payment can contribute positively to your credit score making it easier for you to obtain a loan in the future.
- Some insurance policies like annuities are designed specifically to provide retired individuals with a regular stream of income in lieu of a lump sum amount which they are required to invest in the policy.
- Insurance isn’t just meant to protect individuals. It can also be taken to safeguard your business from any potential or unforeseen financial risk, liability or instability.
- The passing away of a loved one is a very difficult time which also brings with it the burden of some sudden expenses. Life insurance can help reduce the monetary stress when your family is undergoing an already difficult time.
Types of Life Insurance
Term Life Insurance
As the name suggests, term insurance has been designed with the purpose to provide financial protection but only for a certain pre-determined number of years. Under term insurance, the premium amounts remain stable till the term of the policy, say 10 or 20 years. However, once the policy term is over, customers are given the option of continuing their coverage but at a hiked premium. Term insurance is ideal in cases where you would like to ensure the general financial safety of your family / beneficiaries and also meet financial commitments like debt repayment, upkeep of business, children’s education, etc.
Universal Life Insurance
Universal life insurance is more permanent in nature than term insurance. This particular type of life insurance provides flexibility when it comes to flexible coverage which is usually for a lifetime, along with flexibility in terms of premium amount. The two most popular uses of universal life insurance are: (i) flexible estate planning strategy where the wealth is preserved in order to be transferred to beneficiaries in the future, and (ii) when the need for coverage extends beyond an individual’s working years, Universal life insurance acts as long term income replacement. The most commonly found types of universal life insurance are:
(i) Policy is designed to allow the holder to build cash value while providing death benefit coverage.
(ii) Provides guaranteed Death Benefit coverage
Whole Life Insurance
Whole Life insurance is of a relatively permanent nature as it provides lifetime coverage. It is due to this reason that premiums for whole life insurance policies tend to be higher as compared to term life insurance. However, the premium value for these policies remains unchanged while the policy also enables you to create tax-deferred savings. Whole life insurance policies are also employed in situations where wealth requires to be preserved in order to be transferred to beneficiaries at a later stage.
Investment Linked Insurance
Investment linked insurance serves a dual purpose of protection and investment. These insurance plans not only provide insurance cover but also allow you to invest units in a managed fund. The performance of your preferred investment shall decide the price of your units. Investment linked insurance plans may or may not provide Death Benefit.
List of Companies Offering Life Insurance
Following are some of the leading life insurance providers in Singapore.
- AIA Singapore Private Limited
- AVIVA Life Insurance
- AXA Life Insurance
- Great Eastern Life
- Tokio Marine
- NTUC Income
- Manulife Financial
- Generali International Life
FAQs – Life Insurance
- When is the right time to apply for a life insurance policy?
Since life insurance aims to protect you and your loved ones against any unforeseen loss, it is advisable to apply for a life insurance policy when any major life event takes place, like for instance purchase of a new house / apartment, marriage, birth or adoption of a child or a getting a new job.
- My employer provides life insurance at my workplace. Do I still need to get a separate life insurance policy for myself?
It is extremely beneficial if your employer provides life insurance cover. However, such insurance policies should just be treated as a starting point. By purchasing an additional life insurance policy, you can customize the cover and other important factors of the policy to specifically suit your needs.
- Should I replace my existing life insurance policy?
It is not always advisable to replace a policy that is in force as it may attract new charges and fees. Also, in case of declining health, a new policy might require you to pay higher premiums or you may find yourself ineligible for certain beneficial riders with policies. Instead of replacing your existing life insurance policy, you could opt for riders to attach to your policy in order to enhance the protection it provides.
- I don’t have any dependents? Do I still need a life insurance policy?
In case of no dependents, a life insurance policy can serve as a great investment tool. You can chose between a savings policy or an investment linked policy, both of which yield returns which are higher than bank interest rates. If you are a young individual, you can opt for a whole life insurance policy which features low premium amounts.
- How much cover is enough cover for insuring myself and my family?
Insurance needs change from person to person. While a certain amount of cover may work for one person / family, it may not be adequate for another. Hence, the recommended thing to do is consult a financial adviser who can best assess your needs and give suggestions on the amount of cover you need accordingly.
- Given that I do not have a fixed amount of income each month, is there a provision where I need not pay fixed premiums towards my life insurance policy?
In case you do not have a fixed amount of income flowing in each month, it would be advisable to go for a universal life insurance policy. This type of life insurance allows you the freedom to decide the amount of premium, how you would like to pay I and at what intervals. Additionally, not only do universal life insurance policies feature the Death Benefit but also allow you to earn interest on your cash value.