Why You Should Buy Term Insurance

What is Term Insurance? The terminologies used in the Financial Services Industry certainly gets lots of people confused. Term Life, Term Policy, Term Insurance, Term to Age, “X” Year Term can all refer to the same category of policies. The key is the tenure of the policy, how long does it covers until, i.e. what is the term of the policy. Whether it is a 5 Year Term, 10 Year Term, Term to Age 65 for example will directly affect the premium payable. Premiums are usually fixed for the tenure of the policy.

Term Insurance is the purest form of insurance, i.e. a person pays the insurance company a premium per year in exchange for a protection/coverage, for example Death, Total Permanent Disability, Critical Illness, Early Stage Critical Illness, Accidental Death or Disability etc. Term Insurance is also the most inexpensive way to insure yourself, because of the low quantum. However, the premiums payable over time constitute a fixed cost, for peace of mind.

Since Term Insurance is so affordable, why are there other products in the market like WholeLife, Endowments and Investment-Linked Policies? Term Insurance usually offers the highest leverage on premium vs coverage ratio, which is ideal in a situation whereby resources are tight. The catch is the mortality rate. In Singapore, average mortality of men is around 80 and women 85. That is to say, most Term Insurance would eventually expire at a certain age like 65/70/75, without any returns (cash or surrender value).

An ironical scenario is this, if you have bought a Term to Age 75 policy and on the day that you turned Age 76, should you have regretted not being able to claim for any benefits, or should you be happy that you are still strong and healthy, only to realise that you are left with no protection? Of course, whether does one need protection beyond Age 75 depends on his/her unique situation.

Ultimately, it is really an individual’s preference whether how suitable Term Insurance is in his/her situation. I feel that it is always good to have a part of the portfolio consisting of Term Insurance, as it provides for a high leverage on your premiums. But too much of it represent a significant cost that is guaranteed to have no returns, unless you hope that you “lose to win”?

Up next, we will explore one of the best Term Insurance in the market, which comes in the form of the Aviva SAF Group Term Life Insurance.

© Wee Khai
Wee Khai is an avid soccer player, who is also a finisher of 12 half-marathons and 3 full marathons.