Often, we buy insurance that protects us against unforeseeable. However, life insurance protects our family in case the inevitable happens. It ensures that your loved ones are financially protected if you die.
Term insurance is a simple and pure form of life insurance. It’s affordable; hence individuals can buy a large cover amount at a low premium rate. In case of death, the person you insure during the policy will receive the benefits. The best term insurance in Singapore provides financial security and at the same time allows you to buy optional coverage for accidental death or critical illness. Learn more about term insurance and whether it’s right for you from this guide.
What is Term Insurance?
It’s a type of insurance with a specified date. For instance, the buyer could choose an end date like 20 years from the time they buy the policy. In that case, the death benefits will only be issued if the policyholder dies before the chosen term ends.
Death benefits are the money the beneficiary receives once the policyholder passes on. While there are different types of death benefits, the common one for a term policy is a level term policy.
In this type, the death benefit’s value doesn’t change for the whole time your policy is active. Note that this benefit can also decrease with time, typically in one-year increments.
Some companies also let you convert your term insurance to permanent life insurance without asking for a medical exam. But that only happens when your term is up. Also, bear in mind that once you convert, your premiums will be higher.
How Does Term Insurance Work?
The first step, which is also featured in other insurance policies, is the agreement between the policyholder and the company. You (the policyholder) can buy coverage for yourself or your loved ones. The insured person is the one to receive the benefits.
As the policyholder, you’ll pay the insurance company a pre-decided premium. Then, they will pay a fixed amount of death benefits to the insured person should you die while the policy is active.
Once you agree with the way forward, you’ll need to disclose this information in your application form:
- Current health conditions
- Medical history
- Lifestyle habits
- The nature of your job
- Annual income
The insurer evaluates this information to determine whether your family can raise a life claim. Some factors can increase the premium amount you buy. For instance, you’ll pay higher if you have chronic health conditions, work in a hazardous profession, engage in unhealthy habits such as smoking, are older, and participate in risky hobbies like skydiving.
Then after you need to assess your requirement. Choose a term cover that will support your dependent’s current living expenses. Consider fees, marriage, your spouse’s age, and pending liabilities.
Also, decide on how long your loved ones will receive the support. It can be until they finish college for children or until retirement for your spouse. You also need to select a premium payment mode; it could be one-time or regular payments.
Lastly, decide on the payout option. It could be a lump sum payout, given to your family after outstanding debts are paid, or you can combine a lump sum with a staggered payout to ensure that your family never lacks funding.
The insurer will then review your information and offer a quotation. Then you can start paying for the coverage.
Types of Term Insurance
There are various term insurance policies. The right one will depend on your situation. Here are the most common:
Level Term/Lever Premium
They offer coverage for a specified period, usually from ten to thirty years. They feature fixed death benefits and premiums. But note that their premiums are relatively higher as the actuaries need to account for the increasing costs of the cover during the policy’s term.
Yearly Renewable Term Policies
They do not have a fixed term. Therefore, policyholders can renew yearly without proving insurability. The premiums are different every year. Note that as the policyholder ages, the premiums go higher.
Decreasing Term Policies
Here, the death benefit reduces every year as per the pre-determined schedule. You pay a fixed premium for the policy’s duration. These policies are often used along with a mortgage to match the coverage with the decreasing home loan amount.
After choosing the right policy for you, research different companies offering it to ensure that you get the best deals. Note that premiums and terms vary depending on the insurer.
What Are the Benefits of Term Insurance?
Term insurance offers various impressive features, including:
- Large Life Cover: A term insurance is generally affordable, meaning you can buy a higher policy at the same amount you’d buy an endowment plan.
- Riders: You can attach a rider to your plan and enhance the policy’s utility. For instance, you can opt for a critical illness rider/plan. This entitles the rider to receive benefits for the amount assured for being diagnosed with a critical illness on top of the death benefit. You can also choose other riders, like loss of employment, waiver of premium cover, disability cover, etc.
- Enhanced Cover: Some insurance companies let you enhance your cover during your critical stages of life. For example, you can enhance it by 50% during a marriage or 25% at the time of a turning parent. This enables them to start this cover and enhance it with increased responsibilities.
Should I Buy a Term Insurance Policy?
Every working person needs to take a term insurance policy, especially if they have family members depending on them. So whether you are 18 years or 65 years, you should consider having this cover.