Is Wholelife Insurance For Me?

I have previously discussed about Term Insurance and made a comparison between a normal Term Insurance vs Aviva SAF Group Term Life Insurance, it’s benefits and suitability.

Another big category of Life Insurance products is WholeLife (WL) insurance. WL insurance falls under the umbrella of Participating (Par) products. Where Non-Par products like Term Insurance does not enjoy the bonus/dividend from Participation Funds investments returns, insurance company declares bonus/dividends annually to shareholders and Par products Policyholders. This is where the cash value (i.e. Surrender Value) increases over the years as Revisionary and Terminal Bonuses are declared. Examples of Par products includes WL insurance, Endowments and Retirement plans.

Let’s dive in further into just WL insurance for the purpose of this article. WL plans probably come into the picture in the late 1980s, from the experience I have gathered so far. The key features include the Sum Assured, Coverage (i.e. on Death, Total Permanent Disability TPD or Critical Illness CI), Maturity Date, Premium and Premium Payment Term (PPT). Sometimes you also find additional benefits like Waiver of Premium, Hospitalization & Surgical (H&S) and Accident riders being bundled in. Obviously this doesn’t help with the clarity of WL plans that were taken up, as the majority of people whom I spoke with often say they are not sure about what they have.

WL insurance in the early days were rigid. The PPT are often till Age 87 or Age 99. This means that to continue to get insured and for cash value to continue to build up, one have to continue to pay beyond retirement and till old age. This system of payment however is not very popular as awareness and education on insurance gathered over time. This gave rise to innovation in PPT whereby nowadays consumers can choose a shorter, limited payment like 10/15/20/25 or Till Age 65, to ensure affordability during their prime working period. Whichever type of WL insurance you are having, if we fix all parameters except for PPT, the shorter the payment, the higher the yearly premium. We can think of the Cost of Insurance as an “area under the graph”, either the total cost is leveled up to Age 87/99 or compressed to a Limited PPT of 10 to 25 years. One benefit of a shorter PPT is that the Total Premiums to be paid will actually be much lesser than if you do a longer one like 25 years or until Age 65, main reason being the Time Value of Money.

From many conversations, I believe many people who took up WL insurances in the early days see them as a form of retirement savings, as majority would cite receiving a lump sum at Age 65 for retirement. Technically, this is possible, but however surrendering the plan would also means giving up the coverage (ie risk undertaken) by insurance companies. This disadvantage is more evident for the newer policies which are typically limited payment for 10 to 25 years, because you have already fully paid up your premiums (and also the cost of insuring yourself for your whole lifetime). Hence for this very reason, my view on Limited Pay WL insurance is more on guaranteed protection till old age (living benefits like CI rider) and leaving a legacy behind for your loved ones (death coverage). This is simply because having fully paid for such policies, you are sure to make a claim sometimes in the future, because one either falls ill critically someday or pass away eventually. And the amount based on a claim will definitely be higher than the actual surrender value itself. This will be clear if you were to compare the projections of the Death Benefits and Surrender Values.

So to answer the important question, are WL policies for you? I think they are if you like to have a guaranteed coverage for your whole lifetime, based on a limited payment term, without any worries on the cost of insurance, not really intending to surrender the plan for retirement and to leave behind a legacy for your loved ones.

However, if you wish to enjoy the surrender value that you have accumulated within the policy but yet at the same time feel that it would be good if you can also enjoy the coverage, then getting a WL policy might not be the best solution. Instead you might want to construct your portfolio with the use of WL policies in moderation, and consider other types of insurance instead.

NB: These views on WL plans based on my own views only. It is not meant to represent the “most correct” use of WL insurance policies.

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