4 points to note before deciding which life insurance to buy

Thinking of buying life insurance but not sure how to start or what you should consider? Here are 4 points which may help you as you consider the different life insurance options.

1. Understand the difference between term and whole life insurance

You may have chanced upon different types of life insurance. Two such common examples include whole life insurance and term life insurance. For a start, what are some of the key differences between term and whole life insurance?

Some of the key differences between term life and whole life insurance:

Period of protection

Term life insurance has a set period of protection while most whole life insurance gives you a life-long protection as long as you can keep up with the premium payments.

Cost of policy

The premiums of term life insurance may be lower than that of whole life insurance.

Additional savings component as part of policy

Whole life insurance policies may include an additional savings component where the payout you receive from the policy will include the sum insured and any other cash value that have been accumulated.

You can also read our blog to learn more about the differences between term and whole life insurance.

Read also: Are you the type who needs life insurance?

2. Know how much financial protection you need

Another key consideration when deciding which life insurance to purchase would be to know how much financial protection you require.

According to the Life Insurance Association (LIA), your life insurance protection gap coverage is defined as follows:

Protection needs – resources available = Protection gap

This protection gap that has been calculated can be seen as the amount of financial protection that you require. Here are some potential considerations as you weigh your protection needs and the resources available, subject to individual circumstances.

Your protection needs may include but not limited to:

• additional expenses which you may not have accounted for such as medical expenses;
• the amount of housing and personal loans you need to pay off; or
• any ongoing daily expenses which may include household expenses, childcare costs and caretaker expenses

The resources available may include but not limited to:

• cash on hand or easily accessible through bank accounts;
• available funds through CPF;
• available funds from investments; or
• existing insurance plans and investment-linked products

Considering these points may help give you a better idea on your personal financial protection needs, allowing you to better plan out the amount of coverage that you may require. Alternatively, a simply rule of thumb to follow given by the LIA would be to have a coverage of around 9-10 times your annual salary.

Read also: 3 things I wished I knew about insurance in financial planning

3. Buy life insurance as early as possible

Buying life insurance may not be the first thing on your mind when you are young and healthy with fewer responsibilities. However, purchasing life insurance at the early stages of your life can be a useful and important consideration. For most life insurance, you tend to pay lower premiums at a younger age. Purchasing life insurance at a younger age at a lower premium can potentially help you save on your premiums and divert these funds for other expenses or savings. Having life insurance is essential to ensure that your loved ones are well taken care of if anything unfortunate were to happen to you.

4. Know your current life stage

The amount of coverage we need changes at different stages of our lives, as our life priorities shift. Having a clear idea of which life stage you are at allows you to better plan out your finances as well as gauge the coverage you may need.

For example, when you decide to start a family, getting life insurance may be of greater importance as you take on new responsibilities and commitments. The amount of coverage you need may also be higher than before to support your other priorities such as paying off home loans and saving for your children’s education. If you happen to fall into this category, you may want to check out FWD Term Life Plus insurance, where you can get up to S$1.5 million coverage¹ by simply applying online. Ensure that your family is financially protected so that you can focus on what matters most. Find out more about FWD Term Life Plus insurance and get a quote now.