Life Insurance in Singapore: Overview of Policy Types

If you have dependents or other people with whom you share your life, a life insurance policy will provide peace of mind and protection for your family in case something unfortunate happens to you. Life insurance in Singapore is becoming more and more popular with many people now realizing the importance and the benefits of a good life insurance policy.

Singapore has more than 140 registered insurers, of which about 20 are dedicated life insurers. There are plenty of choices when it comes to choosing a life insurance partner. Ever since the private life insurance industry was given a boost in 2000, when the government opened up the industry to foreign companies, the numbers of vendors and policies have multiplied.Some of the leading companies include American International Assurance, AXA, Great Eastern, HSBC and NTUC, each offering a variety of standard and unique products.

When deciding among various types of life insurance products available in Singapore, you should remember that the basic function of life insurance is to protect your family against financial loss upon your death or permanent disability. There are other functions such as savings and investment, as mentioned earlier, but the death benefits is the most common reason for taking out life insurance.

The cost of life insurance is based on your health, age, gender, and the type of policy you choose. The insurance company bases the premium by calculating the risk of your death. The older you are or the poorer your health, the higher the risk and the more expensive your insurance will be.

This article will help you understand the different life insurance products available in Singapore and some guidelines for choosing the life insurance product that's right for your family situation.

There are two broad categories of life insurance products in Singapore - term life insurance and permanent life insurance. A term life insurance can be of type basic term life insurance and endowment life insurance. Within permanent life insurance products, they are further divided into whole life insurance, universal life insurance, and investment-linked life insurance.

Term Life Insurance in Singapore

Term life insurance is only valid over a certain time period, or term and is considered as a temporary insurance. A term life insurance fulfills the main and basic idea behind life insurance that if you die prematurely, there will be a sum of money available to take care of your family.

Basic Term life insurance – usually covers death only but many Singapore term life insurance plans offer permanent disability protection as well. If you were to suffer such a catastrophe during the period of term life insurance, the insurance company will provide a payout to your beneficiaries. If the insured dies after the term ends, there are no benefits available as the deal is over as soon as the term expires. Term life insurance in Singapore can be purchased for a stated period of time typically ranging from 5 to 30 years. The most common form of premium for term insurance is a flat-guaranteed monthly rate for the term of the insurance. Some plans have an option to renew at the end of the term period, however, the premium will be recalculated based on your age and health at that stage. Choosing a Singapore term life insurance policy may be a good option for you under the following circumstances:

• You are the main income earner for the family and;
• You wish to protect your family from a financial insecurity in case of your premature death and;
• You have a limited budget for making insurance premium payments.

Endowment Life Insurance – This type of life insurance policy has features of a term life insurance and a long-term savings account. Essentially, a Singapore endowment insurance plan specifies a maturity date, provides stable returns and grows in value over time for the premiums paid plus in the event of the death of the insured party during the period of the policy, the agreed sum assured is paid out to the beneficiaries. The interest rates are normally more generous than the fixed deposit rates you get from banks. This kind of life insurance in Singapore is a form of savings for whatever purpose, be it buying property or paying for your children’s college education. If you die or become permanently disabled before the maturity date, your beneficiaries will receive the sum assured. Premiums for endowment policies are normally higher than term insurance or whole life insurance and are also available with profit plans, which is the most popular type of endowment life insurance plan in Singapore. This means that a share of the company’s profits is added on to your policy annually. A without profits plan means you only receive the basic sum insured. Choosing a Singapore endowment life insurance policy makes sense in the following cases:

• You are planning to save money for a specific period and for a specific purpose such as kids educational fund or retirement fund and;
• You want a peace of mind that the required money will be available regardless of whether or not you are able to live to the end of the said number of years.

Permanent Life Insurance in Singapore

As opposed to a term life insurance, a permanent life insurance policy is for the life of the insured, the payout is assured at the end of the policy (i.e. whenever the insurer dies) and the policy accrues cash value that can be utilized for retirement needs. In a permanent life insurance product in Singapore life insurance is combined with investing.

Whole Life Insurance – This is type of a permanent life insurance that has a fixed premium and fixed death benefit. A Singapore whole life insurance promises to protect you for your whole life as long as you pay your premiums. Whole life insurance will pay the agreed upon death benefit when the insured dies, no matter when the death might occur. The premiums can be paid throughout your life or within a defined period. The insurer pays the same premium each year which is significantly higher than the term life insurance. This is because when you buy a Singapore whole-life insurance policy, you are getting a life insurance policy that will last for your whole life and will accrue cash value. After the insurance company takes the amount of money it needs from the premium to meet the cost of term insurance, the insurance company will invest the extra money for you. This is called cash-value. You can withdraw cash in the form of a policy loan should you require emergency funds or you can redeem by cashing in the policy. However, any outstanding loan amount will be deducted from the payout to your designated beneficiaries upon your death. Choosing a Singapore whole life insurance policy may be a good option for you under the following circumstances:

• You are the main income earner for the family and;
• You wish to protect your family from a financial insecurity in case of your death and;
• You can afford higher premiums of a whole life insurance policy on a consistent and long-term basis and;
• You want the life insurance policy to be permanent i.e. the policy will pay regardless when you die and;
• You want to be able to use the cash value of the whole life insurance policy for your retirement needs, if required.

Universal Life Insurance – This is another type of permanent life insurance and differs from the whole-life insurance that it provides flexibility in the death benefits and the premium payments. Singapore universal life insurance is also known as adjustable life insurance. The main feature of a universal life insurance policy is that after certain money has accumulated in your cash value account, you will also have the option of reducing your premium payments as long as there is enough money in your cash value account to cover the costs. This can be a useful feature if your economic situation has suddenly changed. The death benefit may no longer be available if the cash value or premium payments are not enough to cover the cost of insurance. However, Singapore life insurance companies typically make their policies more attractive by adding guarantees, where if certain premium payments are made for a given period, the policy will remain in force even if the cash value drops to zero. You can borrow or withdraw money and the policies normally guarantee a minimum interest rate on your returns. A universal life insurance policy in Singapore may be a good choice for you if you are looking for a permanent life insurance policy like whole life insurance policy but want the flexibility in premium payments to cope with any sudden changes in your financial situation.

Investment-Linked Life Insurance – This is also a type of permanent life insurance in Singapore that offers life insurance protection as well as investment opportunity to the policy owner. When you take out such a policy, you are given a choice of funds to invest in. As long as your premiums are paid up, you can also switch funds while the policy is active. The benefits of investment-linked life insurance plan are directly linked to the performance of the funds that are chosen by customers in accordance to their risk preference. Essentially, it's a whole life insurance policy that allows you to invest the cash value of your policy in one of the investment funds. Because of the variety of funds available, the value of your insurance policy depends on the performance of the funds. If you die or are permanently disabled, your family will be paid the sum assured. As such, the protection aspect of this type of Singapore life insurance policy remains firmly in place. An investment-linked Singapore life insurance policy can be either single-premium, in which the premium is paid in one lump sum or regular-premium, which are on-going payments. Investment-linked funds gather the premiums of all policy-holders and invest in asset portfolios, all of it managed by the insurer or external fund managers. Investment-linked life insurance policies are a better fit for people who believe they can generate better returns on the cash value accounts by investing in the available funds than the interest rate offered by the insurance companies.

Dependants’ Protection Scheme (DPS) – This is a government-linked insurance programme in Singapore through the Central Provident Fund (CPF), a pension scheme that requires all Singapore citizens and permanent residents, along with their employers, to contribute a percentage of their salary event month. The DPS covers only the first few years after a CPF member’s death or permanent disability with cash payments to his or her beneficiaries.

Do you really need life insurance?

You must decide carefully before getting a life insurance in Singapore. Once you have subscribed to a life insurance policy, you are more less locked up in paying a monthly premium which may be small or significant depending on the type of policy you choose. You must evaluate how much premium you can afford to pay on an ongoing basis without making it a significant burden on your family. If you have no dependents, you probably don't need life insurance. If you don't generate a significant percentage of your family's income, you may not need life insurance. However, if your salary is important to supporting your family, paying the mortgage or other recurring bills, or sending your kids to college, getting a life insurance is important to ensure that these financial obligations are covered in the event of your death.

Coverage prices vary depending on your circumstances, age, income and marital status. The amount of coverage required depends on your personal situation. A general guideline is between five and ten times of your annual take home pay. Also, you should be careful in deciding whether to opt for term life or permanent life insurance. The premiums for a permanent life insurance will be significantly higher than the term life insurance. If your budget is limited, stick with term life insurance. On the hand, if you can afford the premiums, you can explore one of the permanent life insurance types since it acts as a life insurance and as well as an investment vehicle at the same time.

How to choose a professional insurance agent?

Once you have decided to get a life insurance, you need to choosing the right life insurance broker in Singapore. Competent insurance agents will first take the time to understand your family situation and insurance needs and then present with a life insurance product that best suits your needs.

It's very important to select an agent that works with multiple insurance companies. An agent that works with (or for) a single insurance company, may not be able to present you with a most optimal life insurance policy as the choices will be limited. Remember, a good Singapore life insurance agent not only sells insurance; he/she must be able to guide you through the sometimes complex maze of choices associated with term, whole life, universal life, and other life insurance options in a way that is understandable to you.

Final Thoughts

Singapore has a thriving private sector life insurance industry that is regulated by the government and, in recent times, has become even more transparent to help you make better decisions. The government also has a registered directory of financial advisors to help you make the right choices should you feel overwhelmed by the number of options available.

Life insurance provides many benefits. Not only can a policy help your family upon your death but it can also act as a savings scheme for your retirement and paying for your children’s tertiary education. In Singapore, there are a variety of life insurance schemes, the vast majority available through private companies. The Dependants’ Protection Scheme (DPS) is government-linked but the more comprehensive schemes, such as term insurance, whole life insurance, universal life insurance, investment-linked insurance, and endowment insurance programmes are available from the private sector in Singapore.