• Whole Life Insurance coverage plans have come a very long way. What used to be just Death, Terminal Illness and Total Permanent Disability coverage has now seen a wide variety of range of supplementary benefits to make the Whole Life Insurance an even more comprehensive coverage:

Imagine you are looking at a coverage of $250, 000 for Death, TPD and Early Stage CI coverage. Anyone of those occurring and you would like a payout of $250, 000. However a high sum assured like that is going to be expensive. Thus, you can work around a few permutations, for example:

A sum assured of $50, 000 with 5 times multiplier ($250, 000) and a sum assured of $125, 000 with 2 times multiplier. Both provides $250, 000 of coverage until age 70 (most insurers at age 70, with certain insurers until age 86 or even life).

That being said, after the age of 70 (or when the multiplier ends), the payout will be basic sum assured ($50, 000 or $125, 000 in this case) and yield it garnered throughout the years.

So why would someone choose a lower Sum Assured and a higher Multiplier benefit? The main difference is that the one with $50, 000 sum assured is going to be cheaper than the sum assured of $125, 000, as the cash value is going to be higher for the $125, 000 one and the premium calculation is based on sum assured.

Depending on certain Insurers, they have a feature where you have the choice to convert their whole life plan into an annuity retirement plan. It allows you to enjoy a stable stream of income at a chosen stipulated age while at the same time not terminating the policy, with a reduced sum assured.

This is suitable when you find that the sum assured for death/CI coverage is not as concerning when your life commitments have been completed or dependants are now financially sustainable on their own now.

The Cash Value of a Whole Life Insurance policy is a pool of money that grows within it. Insurers will allocate some of the premiums that you pay into their underlying investment which can be assets and/or funds portfolios. This is managed by a fund manager either by the insurer or appointed. Having a Cash Value in a whole life plan is what makes the premium so much more expensive as compared to a term insurance.

Some believe that the cash value is not as attractive as having their own endowment or investment wealth growth instruments, leading a school of thought that is termed as “Buy Term Invest the Rest” (BTIR), where using the similar premium, you save on focusing life and critical illness with term insurance and growing your own wealth with investments/endowment.

Participating whole life insurance refers to the plan is being invested in Insurers’ participating fund. By doing so, Insurers share the profit of the returns of the investment also known as bonus, paid yearly, via the smoothing process:

Smoothing policy: Insurers generally try to avoid large fluctuations in the non-guaranteed bonuses from year to year by smoothing bonuses over time. For example, insurers may hold back some bonuses in the years when the fund has performed well. This is so that bonuses can be maintained when the fund performs poorly. (https://www.moneysense.gov.sg/articles/2018/10/participating-versus-non-participating-policies)

Once the bonus is declared, they are guaranteed and accumulated throughout the whole term. In a Whole Life Insurance, it can be accumulated for life, or age 99 which are some Insurers’ definition of whole life is.

To differentiate between participating and non-participating policies, have a look at the Policy Illustration and you will see under the Surrender Value (Cash Value upon surrendering) table, there is a Guaranteed and Non-Guaranteed portion, with 2 standard projections of 3.25% and 4. 75%. As insurers cannot guarantee market trends, as well as past performances are not an indicator of future outcomes, the closest thing is to show accurate reasonable projections like the 2 projections stated above.

Term Insurance on the other hand, is one common Non-Participating policy that has a definite payout amount under the specific coverage (Death, Early Stage CI, MultiPay CI etc) and does not participate in the profit of the participating fund and underlying assets.