Life Insurance May Not Be For Everyone


It may be an integral part of the modern world but many find the ins and outs of insurance relatively confusing. One is often left to draw necessary information from sales agents in the field, a group notoriously and justifiably known for harbouring vested interest in keeping their KPIs and sales targets healthy. One area of the industry that is touted as a necessary add-on to the likes of basic health cover is life insurance.

As of May 2016, Singaporeans collectively possess 13.1 million life insurance policies with overall insurance accounting for 9.3% of the country’s households’ net worth. We explore the basics of this sub-sector as well as the reasons why it may not always be the best option for everyone.

Life Insurance Explained

The industry is equipped with more plans than one can keep up with. This article will concentrate on two popular life insurance covers – term life insurance and universal life insurance.

The term life insurance variant is basically what comes to mind when most people think about life insurance. It administers a payout when one dies, and is usually purchased in order to protect loved ones against financial burdens in the event of their death. One pays premiums every year for the agreed term and beneficiaries get a payout if one dies during the course of the cover. If one dies after the term ceases, the beneficiaries get nothing. That being said, many large insurance companies offer the option for the policyholder to convert the plan to a permanent policy. This allows the cover to run indefinitely and comes with certain terms and conditions as well as higher premiums.

On the other hand, universal life insurance merges elements of term life insurance with an investment savings component. Covers combine the ability to amass savings while providing a life insurance policy, giving policyholders certain flexibility in what they can do with the savings/investment portion of the premium. This can also double-up as forced savings towards further investments such as a down payment on a home or purchasing shares.

A part of the universal life insurance monthly premium is put into the cost of the life policy that will provide death benefits to a beneficiary while another part of the premium is invested so it can be channelled into investment savings. The popularity of these plans stem from the fact that they provide the opportunity to grow wealth while still ensuring that one has a life insurance policy in place. A downside of these policies is that they depend on market volatility/stability (for the investment portion) which involves elements of risk.

Why Life Insurance Isn’t For Everyone

Take the example of someone who is in the pink of health and has already passed his or her 50s. Premiums at this age will be considerably higher and there is a good chance that they will outlive their term, with their beneficiaries not receiving any payouts. This is pertinent to term life insurance plans that only disburse funds in the case of death during the period of their term. It goes the same for young children who are generally born healthy and will live for a considerable number of years.

As the primary role of life insurance is to provide for dependants in the case of unexpected or premature death, singles who do not have children also fall under the bracket of those who may want to give life insurance a miss. That being said, insurance payouts can help to pay for funerals as well as to settle debts so that no one else will be held liable. This group might be better off signing up for a universal policy over a term one, which will also double up as a source of forced savings and a contingency plan if they have parents who are also dependants.

There is also the interesting truism that life insurance isn’t actually insurance in its literal sense, as the eventuality is a guarantee. It’s more a matter of when so policyholders are actually hedging their bets. Unlike health insurance – a necessity that everyone should sign-up for – the decision to hold a life insurance policy depends on one’s current situation. A big thing that should be kept in mind is to never over-commit to a policy that one can’t possibly fulfil financially.

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