On the whole, a whole life insurance policy allows you to be insured for as long as you live. Furthermore, your life insurance policy will accumulate a cash value over time. For that reason, the insurance policy benefits and features will appeal to consumers who want more than just life insurance protection alone. With this in mind, let’s list these factors to find out when and why you should choose a whole life insurance policy to meet your life insurance needs.

Table of Contents:

1. What is a Whole Life Insurance Policy
2. Life Insurance Coverage for Whole Life
3. Building a Legacy
4. Ability to afford the Insurance Premium
5. Limited Payment Period
6. Participating Cash Value
7. Insurance Policy Loan
8. Assurance for Life

One Minute Summary:

• All things considered, a whole life insurance policy is able to provide you with financial protection for as long as you live.
• Consequently, it ensures that you will be able to rely on the life insurance payout as and when you need it.
• Furthermore, a whole life insurance policy creates an inheritance for your beneficiaries.
• Despite those advantages, you will want to check and confirm whether you are able to afford the insurance premium.
• If so, you will also be able to select a shorter insurance premium payment period (as compared to the whole of life insurance coverage period).
• Summing up, a participating whole life insurance policy will accumulate a policy cash value over time. In time to come, you may use this policy cash value to fund your expenditure.

Part 1: What is a Whole Life Insurance Policy

To begin with, let’s understand the basics of a participating whole life insurance policy. In essence, a participating whole life insurance policy allows you to participate or share in the profits of the insurer’s participating fund. In the same way, you will also share the participating fund’s risks. For this purpose, the insurer will pool your insurance premium together with the rest of the policyholders. Thereafter, the insurer will invest this pool of money into its participating fund. All in all, the participating fund is responsible to meet its financial obligations, e.g.

• To generate a stable return in the medium to long-term;
• Issue a payout for insurance claims and to meet expenses.

Part 2: Life Insurance Coverage for Whole Life

With a whole life insurance policy, it ensures that you will be financially covered for as long as you live. Consequently, if you prefer to rely on life insurance coverage for an extended or an unknown period of time, then a whole life insurance policy may be a safer solution. In this case, you do not have to worry that you will become uninsured when you need the life insurance coverage the most.

Part 3: Building a Legacy

Similarly, you may wish to leave an inheritance for your beneficiaries, e.g. your family members. In this case, a whole life insurance policy ensures that you will not outlive your life insurance coverage. After all, Singapore’s life expectancy has risen from 78.0 to 83.9 years old over the past two decades. Additionally, none of us have a crystal ball to make an accurate prediction on when we will activate the life insurance payout. With this in mind, if you prefer to leave a guaranteed inheritance for your beneficiaries, then you may use a whole life insurance policy.

Part 4: Ability to Afford the Insurance Premium

To sum up, the absolute cost of a whole life insurance policy is likely more expensive than a term insurance policy. As a result, if you spend more money on insurance, then you will have lesser amount of money to meet your other priorities in life. To that end, you will need to check and confirm whether you are comfortable to cater a higher budget towards your life insurance policy.

Moreover, buying a life insurance policy is usually a long-term commitment. Consequently, it is not just about being able to afford to pay for the insurance premium today. In addition, you will also want to ensure that you are able to afford to pay the insurance premium for the entire payment period.

Part 5: Limited Payment Period

That being said, most whole life insurance policies allow you to select a shorter insurance premium payment period. This is as compared to the insurance coverage period (which is for the whole of life). To that end, this frees up your future cash flow to meet your other financial needs.

To illustrate, as a young working adult, you may have little financial commitments today – no loans, and no dependants to take care of. Given that situation, you may have ample free cash flow to purchase a more expensive whole life insurance policy. In time to come, when you start a family and/or purchase a property, you may have lesser free cash flow. At that time when it happens, you may have completed all your insurance premium payments already. Accordingly, you may use the insurance premium’s budget to meet your other financial commitments.

Besides, the limited payment period feature hedges against any potential adjustments to the insurance premium payable in the future. For instance, the rate of insurance premium for the Critical Illness rider is usually not guaranteed. In detail, this means that the insurer may adjust the rate of insurance premium based on its future experience. Moreover, any changes or amendments to Singapore’s laws and regulations may also affect the rate of insurance premium. With this in mind, by completing the insurance payments as early as possible, you reduce your risk of being affected by the insurance premium adjustment.

Part 6: Participating Cash Value

As I have noted at the beginning of this post, a participating whole life insurance policy allows you to participate or share in the profits of the insurer’s participating fund. In time to come, your life insurance policy will accumulate a policy cash value.

For that reason, you may consider a participating whole life insurance policy when you want your life insurance policy to grow in value over time. Eventually, the life insurance policy’s surrender value will become higher than your total capital outlay. Thereafter, in the event that you do not need the life insurance coverage anymore, you may surrender the life insurance policy for its prevailing cash value.

In like manner, most of the insurers allow you to withdraw the accumulated bonuses from your life insurance policy. Generally, you may do so without affecting your life insurance coverage. Accordingly, you may use this set of money to fund your retirement needs or any other expenses that you may have at that time.

Part 7: Insurance Policy Loan

After your participating whole life insurance policy has acquired a sufficient cash value, you may also choose to take up an insurance policy loan. In summary, you are able to borrow money from your own life insurance policy. Thereafter, you may use this money either to pay for the upcoming insurance premium, or to fund any expenses that you may have.

To point out, taking up an insurance policy loan is different from withdrawing the accumulated bonuses from the life insurance policy. In the case of the latter, it usually happens at a pre-defined age, e.g. when you reach 65 years old. However, for an insurance policy loan, you may do so at anytime. This is so long as your life insurance policy has acquired a sufficient cash value.

Part 8: Assurance for Life

All in all, a whole life insurance policy is designed to provide you with financial protection for as long as you live. As a result, it is able to provide you with a greater peace of mind. After all, life insurance is like a parachute. If you need it and don’t have it, then you will never need it again.

First Published: 6 November 2019
Last Updated: 17 July 2024