- \n
- What is a Term Insurance Policy?<\/a><\/li>\n\n\n\n
- Level Term<\/a><\/li>\n\n\n\n
- Renewable Term<\/a><\/li>\n\n\n\n
- Convertible Term<\/a><\/li>\n\n\n\n
- Decreasing Term<\/a><\/li>\n\n\n\n
- Increasing Term<\/a><\/li>\n\n\n\n
- Term with Return of Premium<\/a><\/li>\n\n\n\n
- Conclusion<\/a><\/li>\n<\/ol>\n\n\n\n
Note:<\/span> The figures and the illustrations used in this post are for illustrative purposes only.<\/p>\n\n\n\n
One Minute Summary:<\/h2>\n\n\n\n
- \n
- When you buy a term insurance policy, you are paying a premium for the protection coverage only.<\/li>\n\n\n\n
- Despite that simplicity, there are six common types of term insurance policies in Singapore.<\/li>\n\n\n\n
- Be that as it may, you will need to know your needs before you know which type of term insurance to get.<\/li>\n<\/ul>\n\n\n\n
Part 1: What is a Term Insurance Policy<\/h2>\n\n\n\n
Basically, a term insurance policy<\/a> is designed to provide you with financial protection for a fixed period of time. For the most part, it does not have any policy cash value. Given that simple insurance policy structure, it appeals to consumers who wish to keep their insurance portfolio straightforward.<\/p>\n\n\n\n
![\"What](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_whatisterminsurance1.webp\")
What is a Term Insurance Policy<\/figcaption><\/figure>\n\n\n\n Part 2: Level Term Insurance<\/h2>\n\n\n\n
As a matter of fact, a level term insurance policy is one of the most straightforward type of term insurance policy available on the market. For this purpose, you will pay the same rate of insurance premium throughout the entire insurance coverage period. In summary, here are the key features of a level term insurance policy:<\/p>\n\n\n\n
- \n
- Insurance Coverage Amount: Remains unchanged throughout the entire insurance coverage period<\/li>\n\n\n\n
- Insurance Coverage Period: Predefined prior to the commencement of the term insurance policy<\/li>\n\n\n\n
- Insurance Premium Rate: Will usually remain unchanged throughout the entire insurance coverage period<\/li>\n\n\n\n
- Insurance Premium Paying Period: Same as the insurance coverage period<\/li>\n\n\n\n
- Cash Value: Zero surrender value<\/li>\n<\/ul>\n\n\n\n
Part 2.1: Example of a Level Term Insurance Policy<\/h3>\n\n\n\n
To illustrate, let’s assume that a 20-year level term insurance policy costs $410 annually to insure you for $1 million in the event of death. In this situation, if death occurs during the 20-year insurance coverage period, the insurer will issue an insurance payout of $1 million to either your beneficiary or your estate (depends on whether you have made an insurance nomination<\/a>).<\/p>\n\n\n\n
On the contrary, if death does not occur by the end of the 20-year insurance coverage period, then the insurer will not make any insurance claim payout. In this case, you will forfeit your entire capital, that is, $410 x 20 years = $8,200.<\/p>\n\n\n\n
Part 2.2: Advantages<\/h3>\n\n\n\n
For one thing, a level term insurance policy is a classic example on how to keep things simple. This is because all the factors are known and are fixed prior to the insurance policy’s commencement date. Given that there are no unknown variables, it makes life insurance planning simple. For instance, let’s assume that you are 30 years old and you wish to insure yourself till you retire at 65 years old. In this case, we know that you can consider a 35-year term insurance policy. Additionally, the insurance premium rate for a level term insurance policy tends to remain the same throughout the entire insurance coverage period. To this end, this makes it easy for you to plan your cash flow as well.<\/p>\n\n\n\n
Part 2.3: Disadvantages<\/h3>\n\n\n\n
In truth, fixing all the variables prior to the insurance policy’s commencement date is a double-edged sword. Further to our earlier example, you are unable to extend the term insurance policy’s coverage period at 65 years old. As a result, you will need to be certain that you don’t require any insurance coverage beyond age 65.<\/p>\n\n\n\n
![\"Level](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_levelterminsurance1.webp\")
Level Term Insurance Policy<\/figcaption><\/figure>\n\n\n\n Part 3: Renewable Term Insurance<\/h2>\n\n\n\n
All in all, a renewable term insurance policy is a combination of two or more of the same level term insurance policies. In essence, following the end of each insurance coverage period, you will be able to renew the term insurance policy. For this purpose, the renewed term insurance policy will have the same insurance coverage period as the previous one. To illustrate, at the end of the 10th year, a 10-year renewable term insurance policy allows you to renew it for another 10 years. Summing up, you will enjoy the same level of insurance coverage for a total of 20 years.<\/p>\n\n\n\n
Next, if the basic insurance policy was issued on a non-Standard Life basis, then the insurer will compute the insurance premium rate on renewal on the same basis.. To demonstrate, if there was a 1.5x load factor on the initial rate of insurance premium, then the insurer shall include the same load factor on the renewal rate of insurance premium. In summary, here are the key features of a renewable term insurance policy:<\/p>\n\n\n\n
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- Insurance Coverage Amount: Remains unchanged at each of the renewal period<\/li>\n\n\n\n
- Insurance Coverage Period: Can be renewed successively at the end of each insurance coverage period<\/li>\n\n\n\n
- Insurance Premium Rate: Increases according to your age attained at each of the renewal period<\/li>\n\n\n\n
- Insurance Premium Paying Period: Same as the insurance coverage period<\/li>\n\n\n\n
- Cash Value: Zero surrender value<\/li>\n<\/ul>\n\n\n\n
Part 3.1: Example of a Renewable Term Insurance Policy<\/h3>\n\n\n\n
For example, let’s assume that you are 30 years old currently. In order to insure you for $1 million in the event of death, a 10-year renewable term insurance policy will cost $360 annually. At the end of the decade, you may wish to continue to be insured by the same term insurance policy. In this case, you can choose to renew the term insurance policy for another 10 years. For this purpose, the insurer will calculate the insurance premium rate based on your age then, that is, at 40 years old. Generally, the older you are, the higher the cost of insurance. To this end, in this example, the insurance premium rate will work out to be around $580 annually. After you have renewed the term insurance policy, you will continue to be insured till you reach 50 years old.<\/p>\n\n\n\n
Part 3.2: Advantages<\/h3>\n\n\n\n
As compared to a level term insurance policy, a renewable term insurance policy has a slightly more flexible insurance coverage period. This is because it allows you to renew the insurance policy beyond its initial insurance coverage period. To this end, if you require longer insurance coverage beyond the initial period, then you may activate the renewability option to continue to stay insured.<\/p>\n\n\n\n
Moreover, at the point when you renew the term insurance policy, you are not required to undergo any medical screening or to perform any health declaration. To that end, even if you develop a health condition during the initial insurance coverage period, the insurer is still obliged to renew your term insurance policy. With this in mind, you do not have to worry about your insurability interest then.<\/p>\n\n\n\n
Thirdly, a renewable term insurance policy tends to be cheaper than a level term insurance policy for the initial insurance coverage period. As a result, this will appeal to consumers who are working with a tight budget.<\/p>\n\n\n\n
Part 3.3: Disadvantages<\/h3>\n\n\n\n
Although you are able to extend the insurance coverage period, the insurance premium rate will not remain the same forever. For this purpose, the insurer will determine the renewal insurance premium rate at the age when you renew the term insurance policy. To illustrate, let’s assume that you are 30 years old this year and you purchased a 10-year renewable term insurance policy. At the end of the 10-year period (i.e. when you are 40 years old), the insurer will determine the renewal insurance premium rate based on age 40. In general, the older you are, the more expensive the cost of insurance. Consequently, you will likely pay more for your insurance coverage at each renewal period.<\/p>\n\n\n\n
To illustrate, let’s revisit our earlier example for a 20-year level term insurance policy. In this case, let’s assume that you are 30 years old and you wish to insure yourself for $1 million in the event of death. For this purpose, the insurance premium costs $410 annually. Summing up, the total cost of insurance will be $410 x 20 years = $8,200.<\/p>\n\n\n\n
By comparison, from age 30 to age 40, the insurance premium rate for a renewable term insurance policy will be $360 annually. To point out, this is cheaper than the earlier level term insurance policy. This is because its insurance coverage period is 10 years only. Next, when you renew the term insurance policy at age 40, the insurer will charge you $580 annually. Summing up, the total cost of insurance for the 20-year period will be $360 x 10 years + $580 x 10 years = $9,400.<\/p>\n\n\n\n
All in all, you would have paid an additional amount of $1,200 for a renewable term insurance policy – an additional 15% premium for the renewability option. With this in mind, you will need to evaluate the usefulness of the renewability option and whether it is worth paying the additional premium. If not, is there another way to avoid paying this premium?<\/p>\n\n\n\n
At the same time, there is also a limit on the number of times that you can renew the renewable term insurance policy. Accordingly, you will still need to plan and ensure that the total insurance coverage period aligns with your needs and expectations.<\/p>\n\n\n\n
![\"Renewable](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_renewableterminsurance1.webp\")
Renewable Term Insurance Policy<\/figcaption><\/figure>\n\n\n\n Part 4: Convertible Term Insurance<\/h2>\n\n\n\n
Basically, a convertible term insurance policy allows you to convert the term insurance policy into either a participating whole life insurance<\/a>, an endowment savings plan, or an investment-linked policy. After the conversion has been completed, you will get to enjoy the benefits and features of the new policy.<\/p>\n\n\n\n
Next, if the basic insurance policy was issued on a non-Standard Life basis, then the insurer will compute the insurance premium rate on the converted policy on the same basis. To demonstrate, if there was a 1.5x load factor on the initial insurance premium, then the insurer shall include the same load factor on the insurance premium for the converted policy. In summary, here are the key features of a convertible term insurance policy:<\/p>\n\n\n\n
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- Insurance Coverage Amount: Able to convert up to the current insured amount without further medical underwriting<\/li>\n\n\n\n
- Insurance Coverage Period: Depends on the terms and conditions of the converted insurance policy<\/li>\n\n\n\n
- Insurance Premium Rate: The converted insurance policy’s premium rate will be based on your attained age at the point of exercising the conversion option<\/li>\n\n\n\n
- Insurance Premium Paying Period: Depends on the terms and conditions of the converted insurance policy<\/li>\n\n\n\n
- Cash Value: Depends on the terms and conditions of the converted insurance policy<\/li>\n<\/ul>\n\n\n\n
Part 4.1: Example of a Convertible Term Insurance Policy<\/h3>\n\n\n\n
For example, let’s assume that you are 30 years old currently. At this time, you have a convertible term insurance policy that insures you for $1 million in the event of death. In detail, the term insurance policy will cover you till you reach 65 years old. 10 years later (i.e. age 40), you decided that you prefer to have a whole life insurance policy with an insured amount of $600k. With this in mind, you may choose to convert your existing term insurance policy into a whole life insurance policy. After the conversion has been completed, your existing term insurance policy will continue to cover you for the remaining insured amount, that is, $400k.<\/p>\n\n\n\n
Part 4.2: Advantages<\/h3>\n\n\n\n
By and large, you are able to exercise the conversion privilege without going through any medical screening or to perform a health declaration. To that end, even if you develop a health condition during the period when you have the term insurance policy, the insurer is still obliged to complete the policy conversion for you. With this in mind, you do not have to worry about your insurability interest then.<\/p>\n\n\n\n
- Level Term<\/a><\/li>\n\n\n\n
![\"Convertible](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_convertibleterminsurance1.webp\")
![\"Decreasing](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_decreasingterm1.webp\")
![\"Increasing](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_increasingterm1.webp\")
![\"Term](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_terminsurancewithcashvalue1.webp\")