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- Participating Plan<\/a><\/li>\n\n\n\n
- Insurance Coverage<\/a><\/li>\n\n\n\n
- Insurance Policy Cash Value<\/a><\/li>\n\n\n\n
- Insurance Premium<\/a><\/li>\n\n\n\n
- Participating Whole Life Insurance Policy Features<\/a><\/li>\n\n\n\n
- Conclusion<\/a><\/li>\n<\/ol>\n\n\n\n
One Minute Summary:<\/h2>\n\n\n\n
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- On the whole, the insurance premium in a participating whole life insurance policy is invested into the insurer’s participating fund.<\/li>\n\n\n\n
- Thereafter, the participating fund is responsible to meet the insurance policy’s financial obligations, e.g. to issue a claim payout, to generate a return for its policyholders and shareholders.<\/li>\n\n\n\n
- As a participating plan, your insurance policy will accumulate a policy cash value over time.<\/li>\n\n\n\n
- Given that the insurance premium has to serve multiple needs, a participating whole life insurance policy tends to have a higher Cost to Benefit Ratio (as compared to a term insurance policy).<\/li>\n\n\n\n
- Similarly, the absolute cost of a participating whole life insurance policy is likely more expensive than a term insurance policy.<\/li>\n<\/ul>\n\n\n\n
Part 1: Participating Plan<\/h2>\n\n\n\n
Generally, most whole life insurance policies are participating plans. To explain, in a participating plan, you will 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.<\/p>\n\n\n\n
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- To generate a stable return in the medium to long-term;<\/li>\n\n\n\n
- Issue a payout for insurance claims and to meet expenses.<\/li>\n<\/ul>\n\n\n\n
Part 2: Insurance Coverage<\/h2>\n\n\n\n
Part 2.1: Scope of Insurance Coverage<\/h3>\n\n\n\n
Presently, most participating whole life insurance policies provide a basic life cover. To this end, in the event of pre-mature death, the insurer will issue the death benefit to either your beneficiaries or your estate (depends on whether you have made an insurance nomination<\/a>). Additionally, some of these whole life insurance policies include insurance coverage for Total & Permanent Disability as part of its standard insurance coverage. Accordingly, in the event of Total & Permanent Disability (“TPD”), the insurer will issue the TPD payout out to you. Furthermore, most participating whole life insurance policies allow you to attach optional supplementary benefits. For example, you may include insurance coverage for (Major) Critical Illness, and\/or Early Critical Illness.<\/p>\n\n\n\n
Summing up, the more benefits you add to the life insurance policy, the costlier it becomes. Similarly, the higher the insured amount for the insurance benefit, the higher the cost of insurance. Under those circumstances, you will pay a higher rate of insurance premium.<\/p>\n\n\n\n
Part 2.2: Insurance Coverage Amount<\/h3>\n\n\n\n
When you compare a participating whole life insurance policy against a term insurance policy, the former tends to have a higher Cost to Benefit Ratio. This is because its insurance premium needs to cater to both the insurance charges and the insurance policy’s cash value. As a result, a higher Cost to Benefit Ratio suggests that you are paying a higher cost for the benefits that you receive from the life insurance policy.<\/p>\n\n\n\n
Part 2.3: Insurance Coverage Period<\/h3>\n\n\n\n
All in all, a participating whole life insurance policy is designed to cover you for life. Although this may be true, not all the insurers define “whole life” the same way. To point out, there are some whole life insurance policies that cover you till age 100 only. In this situation, upon the policy anniversary following your 100th birthday, the insurer will pay both the basic insured amount and the accumulated bonuses out to you.<\/p>\n\n\n\n
By comparison, there are also whole life insurance policies that cover you for as long as you live. To clarify, even if you live beyond age 100, the whole life insurance policy will continue to cover you. In this case, your beneficiaries or your estate will receive the death benefit when you pass away.<\/p>\n\n\n\n
Part 3: Insurance Policy Cash Value<\/h2>\n\n\n\n
As I have noted earlier (in Part 1), as a participating plan, your insurance premium is pooled together with the rest of the policyholders. Thereafter, the insurer will invest this pool of money into its participating fund. In time to come, the participating fund will generate a return and distribute a portion of this return out to you. By and large, there are two components to the return that you may receive from the participating fund.<\/p>\n\n\n\n
Firstly, the participating fund will issue the guaranteed benefit as shown in the policy illustration. For the most part, regardless of the prevailing market condition or the participating fund’s experience, the insurer is obligated to distribute the guaranteed component of the policy cash value out to you.<\/p>\n\n\n\n
Secondly, the insurer may also declare non-guaranteed bonuses. In general, this comes in the form of the reversionary bonus and the terminal bonus. Since this is a non-guaranteed component, the insurer is not obligated to distribute the bonuses out to you. Instead, the distribution will depend on the participating fund’s experience each year. Summing up, both the guaranteed and the non-guaranteed benefits form the total surrender value that you can see in the policy illustration table.<\/p>\n\n\n\n
Next, although the entire insurance premium is invested into the insurer’s participating fund, not every dollar (that is put in) will generate a policy cash value out to you. For instance, let’s look at the additional insurance premium that you pay for the Critical Illness supplementary benefit. In this case, the critical illness insurance premium will still contribute to the insurer’s participating fund. In due time, the participating fund will generate a return out of this insurance premium. However, this return is used to cover the cost of any Critical Illness claims. Consequently, it will not be paid out to the policyholder in the form of a policy cash value.<\/p>\n\n\n\n
![\"Participating](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_wholelifeinsuranceovertime1.webp\")
Participating Whole Life Insurance Policy over time<\/figcaption><\/figure>\n\n\n\n Part 4: Insurance Premium<\/h2>\n\n\n\n
Part 4.1: Insurance Premium Rate<\/h3>\n\n\n\n
To sum up, the absolute cost of a participating whole life insurance policy is likely more expensive than a term insurance policy. This is because the insurance premium is used to serve multiple purposes; i.e. pay for both financial protection and to accumulate a policy cash value. In addition, a part of the insurance premium is also used to pay for the insurance policy’s distribution cost<\/a>.<\/p>\n\n\n\n
Part 4.2: Insurance Cost Structure<\/h3>\n\n\n\n
Next, let’s look at the insurance cost structure for a participating whole life insurance policy. In general, for the death benefit, the cost of insurance is usually guaranteed throughout the insurance policy’s premium paying period. To put it another way, you will pay the same amount of money to the insurer each year. For example, let’s assume that a whole life insurance policy costs $3,000 annually. In this situation, the insurance premium will remain at $3,000 annually throughout the entire premium paying period.<\/p>\n\n\n\n
- Insurance Coverage<\/a><\/li>\n\n\n\n
![\"General](\"https:\/\/www.pzl.sg\/blog\/wp-content\/uploads\/2024\/11\/blog_insurancepremiumbreakdown1.webp\")