Term Life Insurance vs Whole Life Insurance: Which One Should You Get?

Term Life Insurance vs Whole Life Insurance: Which One Should You Get?
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When it comes to life insurance, there are two types of coverage. They essentially serve the same purpose, which is to provide a sum of money when you pass away. The money will help your loved ones tide over without you.

These two types are whole life insurance and term life insurance. So, you may be wondering, if they serve the same purpose, what are some key differences between the two? Which one should you get?

What is whole life insurance?

Whole life insurance is a life insurance plan that offers a death, TPD and Terminal Illness benefit and also allows you to accumulate cash value. You can customise by adding riders like Early Stage CI riders (Covering early to advance stage CIs), CI riders (which doesn’t cover early stages), Multiple Payout CI rider (Aviva) and even premium waiver riders for yourself and 3rd parties (dependents like kids). Such a plan covers until the end of your life with a shorter premium term like 20 or 25 years, although some insurers have the option to pay until your age 99. In general, the insurance premiums for whole life insurance plans are higher.

What is term life insurance?

Term life insurance is a life insurance plan that also offers the same benefit of death, TPD and all ranges of critical illnesses. It does not accumulate cash value. It covers you for a fixed number of years so if you do not claim the death benefit and the policy will terminate, that’s the end of the story. There’s no cash value that you will get back.

What are the differences between whole life and term life insurance?

  Whole life insurance Term life insurance
Premiums Higher Lower
Coverage Whole life Fixed number of years
Cash value Yes, able to surrender and get accumulated cash value None

Common misconceptions: Whole life insurance vs term life insurance

  1. My financial advisor will get higher commission if I purchase whole life insurance

As premiums for whole life insurance are higher, people often have the idea that financial advisors will earn higher commission. It is true as the payable insurance premium is higher.

However, this is not because it is a whole life insurance policy. Even if you purchase a term life insurance in old age, your insurance premium may be higher and loading fees will also be higher. Plus, there is no cash value accumulated once the term life insurance policy expires.

However, the insurance company or agent does not necessarily earn more. This is because with term insurance policies, the fee is paid to an insurance company in the form of your insurance premiums. It covers the risk of providing you coverage.

  1. Term life insurance is better because it is cheaper

Yes, it is true that a term life insurance plan can provide the same coverage at lower premiums. But the coverage is only for a fixed number of years. After that, you may need to boost your coverage. If you get a new plan, the premium will be adjusted.

Over the course of your life, you may end up paying more premiums in total if you contract an illness or develop a medical condition later, as compared to a limited-premium whole life insurance policy. There are also other benefits of having a whole life insurance plan:

Other benefits include:

  • Accumulated cash value acts as a savings plan as well
  • A multiplier up to age 65, 70 or 75 where insurance coverage is boosted.
  • Pay for a limited number of years but enjoy coverage for life
  • Specific features and benefits that may be suitable to you.

Interested to learn more?

Fill in the form below and we will get back to you!

Let’s compare specific plans: Whole Life vs Term Life

Term life and whole life insurance are two different types of policies, but we can set some fixed variables and compare how different the premiums can look like.

For this comparison, we are going to look at the variables below:

  • Insurance company: Aviva
  • Sum assured for death: $200,000
  • Sum assured for Total and Permanent Disability: $200,000 (Death benefit)
  • Total Coverage for each plan
  • Multiple Payout Critical illness rider included
  • Profile: Male, 30 years old, non-smoker, office worker
Plans Aviva

MyWholeLifePlan III

Aviva

MyProtectorTerm Plan II

Basic Sum Assured $100, 000 $1, 000, 000
Multiplier x2 (Until age 70) NA
Premium Term 25 years Until Age 70
Early to Intermediate to Advance Stage Critical Illness $85, 000 (Up to 300%) $85, 000 (Up to 300%)
Multiple Payout Up To 500% 600%
Death/TPD/Terminal Illness (Before age 70) $200, 000 $1, 000, 000
Death/TPD/Terminal Illness (After age 70) $100, 000 + Interest & Yield Plan Terminates after age 70
Annual Premium $5, 147.95 $1, 869.50
Total Premium Paid $128,698.75 $74,780

Coverage for Whole Life Plans After age 70:

Aviva MyWholeLife III
Death/TPD/Terminal Illness (After age 75)

@4.75% non-guaranteed Yield

$221, 203
Death/TPD/Terminal Illness (After age 80)

@4.75% non-guaranteed Yield

$243, 083
Death/TPD/Terminal Illness (After age 85)

@4.75% non-guaranteed Yield

$267, 225
Cash Value at age 75

@4.75% non-guaranteed Yield

$153, 551
Cash Value at age 80

@4.75% non-guaranteed Yield

$184, 213
Cash Value at age 85

@4.75% non-guaranteed Yield

$ 218, 036

The key differences between the two policies are surrender value and annual premiums. If you live to the age of 70 without any claims, the term life policy matures and you don’t get any money back. At 70, getting a new policy may be challenging since that is a cut-off age for most insurers. But the whole life policy will provide a cash value if you wish to surrender it.

But an advantage of term life insurance is that premiums are cheaper. Therefore, the plan is suitable for boosting coverage, for example, when you are still in the sandwiched generation.  Your children are young and you also have to support your ailing parents. Losing your income in such a scenario means a high financial burden on your loved ones. So during these crucial years, you can get a term life insurance plan.

By age 75, you probably would not have heavy responsibilities since children are likely to have grown older and have their own jobs, and your parents may not be around anymore. So, a term life insurance is suitable for these situations:

  • Leaving a sum for younger children or elderly parents in case of death, disability or loss of income
  • Paying mortgage or other financial payments
  • Other short to mid-term financial needs

 Everyone is different. You might want to have a whole life insurance policy and boost it with a term life insurance policy. Or, you may want to have just one good insurance policy that is customised to your needs.

If you have concerns, consider speaking with our neutral FA advisor for a non-obligatory consultation to get more insights. To do that, simply fill in the form below

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