A Guide To Purchasing Your First Life Insurance Policy01 Feb 2021
You understand the benefits and importance of having life insurance, and now you are ready to take the next step to protect yourself and your loved ones.
But then you realise that shopping for life insurance isn’t exactly a walk in the park. Deciding which policy to purchase can be a daunting process, especially if it’s your first time. With a lot of things to consider and so many choices available, it’s easy to feel overwhelmed and confused.
Fret not, we’re here to help. Get started with these three basics:
1. Know the types of policies available
In general, there are threewo types of life insurance: term, whole life and investment-linked (ILP).
A term life insurance covers you for a set period (eg. 20 or 30 years). It is the most basic policy and the least expensive, as it provides no cash value. However, the monthly premium increases with age.
A whole life policy covers you for life (typically up to 100 years old). It costs more due to its cash value that is accumulated over time and paid to you once your policy ends. For certain plans, your premium remains the same, even as you get older. (Pro tip: if you need to, you can borrow from your accumulated cash value to pay your premiums during times when your cash flow may be tight). Some whole life policies also offer cash bonuses or annual payouts, though the amount may or may not be guaranteed.
Investment-linked plans are similar to whole life insurance but include an investment component where part of your premiums will be invested in funds of your choice. An ILP also offers a cash value which you can withdraw during your policy term or, cash out when your policy ends. However, this cash value is not guaranteed, as the amount will depend on how well your chosen funds perform.
Here’s a quick summary:
Term Life Insurance (e.g i-Care)
- Low premium (increases with age)
- Set term coverage (eg. 5, 10 or 15 years)
- No cash value
- No cash bonuses / payouts
Whole Life Insurance
- High premium (no increase with age)
- Lifelong coverage (up to 70 years and above)
- Guaranteed cash value
- Non-guaranteed cash bonuses / payouts (participating policies only
Investment-linked Insurance (e.g GoProtect)
- Premium depends on age and coverage amount (no increase with age)
- Lifelong coverage (up to 100 years)
- Non-guaranteed cash value
- No cash bonuses / payouts
2. Find out what you can afford + your desired coverage
Life insurance is a long-term commitment, so you need to be comfortable with the amount of your monthly premium. Take stock of your salary, expenses and any long-term goals you may have (eg. buying a car, a house, getting married).
Next, decide on how much coverage is enough for you. For example, if you’re single with no dependants, you won’t necessarily need a lot of coverage. But if you’re married with children, have a monthly income, and are the primary breadwinner for your family while also providing for your aging parents, then your coverage needs will be higher.
Do consult a financial advisor if you need additional help in working out the numbers.
3. Choose a trusted life insurance company
Your life insurance policy is meant to financially protect you and your loved ones in case the unthinkable happens. So, it’s important to ensure that the policy you decide to purchase comes from a provider you can count on.
Choose a company with a strong market reputation and good financial standing, that can provide you with the most value for your coverage needs.
We hope this guide will help you get started in securing your financial protection. But if you need more guidance, we are more than happy to assist! Drop in your details here and one of our financial advisors will be in touch.