Insurance 101: Term and Whole Life Insurance

In my previous post, I listed the different types of insurance plans available for you to choose from. One thing I find in common among all my clients (most of them are fresh grads or do not have insurance portfolios at all), is that they do not really know the difference between Term and Whole Life insurance, or what it’s even about. When you know the difference and choose which one you want to buy, this will help you understand your insurance portfolio even better so you will not get confused or stuck at a crossroad.

Term and Whole Life insurance

If you’re planning to get coverage for things like Death, Disability, Early and Advanced Critical Illnesses, your insurance agent will give you the option to choose between Term or Whole Life insurance.

The common factor between both plans is that upon any event like the loss of life, disability or diagnosis of early and advanced critical illnesses; the sum assured at the purchase of the plan will be paid out to you. They are both lump sum payouts, but each plan has different features.

Whole Life Insurance contains a Participating Policy (PP) as part of your plan. Having a PP means that the insurance company takes all the premiums with a PP and combines them into a fund called the Participating Fund (PF).  This sum of money is then invested, and the profits will be shared among the clients and the insurance company. When you sign a plan with a PP, this also means your sum assured has a guaranteed and non-guaranteed amount. The performance of the PF will then affect the non-guaranteed part of your plan.

On the other hand, Term Insurance is a Non-Participating Policy (NPP), meaning that it provides guaranteed benefits and your sum assured will not be affected by the rise and fall of the investment into a PF, as compared to a Whole Life plan.

For more information, feel free to watch this video by CMFAS Academy to understand more.

Term Insurance Vs Whole Life Insurance

The comparison below will show you the difference between Term and Whole Life Insurance.
*coverage refers to the Death, Disability, Early and Advance Critical illnesses benefits.

Coverage Period
Term Insurance: Covered only for a certain period, which is decided entirely by you. Normally, many choose for it to be until retirement, to protect their income.
Whole Life Insurance: You are covered for life

Premium Period
Term Insurance: Cheaper premiums
You are required to pay until the end of the plan (some plans allow you to shorten the premium period, and this will lead to an increase in the premium per month).
Whole Life Insurance: More expensive
Premium period can range from 15 to 35 years, depending on which plan you choose. Shorter premium periods normally cost more.

Cash Value
Term Insurance: No cash value
You will not receive any amount of money if you stop the plan earlier or when your Term Insurance has ended.
Whole Life Insurance: Cash value may potentially offset the price difference
Because this is a PP, you will receive an amount of money if you decide to end it at a certain age. Through the Policy Illustration*, you’re able to view the amount, but do take note that it’s non-guaranteed so you’ll have to check with your agent for the latest value.

Coverage Amount
Term Insurance: Higher sum assured coverage
Compared to a Whole Life Plan of the same price, payout of the sum assured for a Term Plan upon unforeseen events is higher.
Whole Life Insurance: Sum assured is lower
Payout of sum assured can be lower than Term Life Insurance, but coverage is for life.

*Policy Illustration – a PDF file containing all the details of your plan, which you will receive upon starting your plan.

Final Thoughts

There is no “one size fits all” when it comes to insurance. Both Term and Whole Life Insurance have their own benefits. I will always ask my clients about their own priorities and evaluate what they are able to afford before suggesting a plan that’s suitable to their needs to prevent them from over- or under-paying.

For myself, I decided to go with Term Insurance after working for two months as I wanted a plan that provided me with a high sum assured until I retire. If anything were to happen to me, my parents or future spouse, it protects us from having to struggle to make ends meet. In addition, because I have just started working, under my tight budget, it is next to impossible for me to afford Whole Life Insurance with the same sum assured as my Term Insurance. The next step in my portfolio is to purchase Whole Life Insurance to cover me after retirement and for the cash value benefit.

If you’ve just started working, it’s understandable that you’re considering Whole Life Insurance due to its benefits.  You just need to take note that it might be a bit pricier because of the cash value. In the future, when you’re looking to increase your coverage, you can decide to get Term Insurance or another Whole Life plan, up to your preference.

As a financial consultant, my job is to meet your needs. I will always list out the pros and cons for the options that I present to my clients so that they can better evaluate and decide which plan is better for them. A happy client means a lifelong journey with them.