Investing in a life insurance plan is a lot like getting into a relationship – especially when it comes to the questions that are asked. Am I ready for such a commitment? Can I physically afford it? Is this the right person – or in this case, plan – for me?
Malaysians are spoilt for choice when it comes to life insurance plans, after a growth of 10.47% annually in the local insurance market for the 20 years leading up to 2016, the last of these three questions is especially striking and important.
It is also a question that makes us wonder if we truly do need a Whole Life insurance plan to begin with – or if a Term Life insurance plan is, in fact, what suits us best.
Not sure what the differences are between these two classes of life insurance, and wondering which would be a better ally for you? Read on and let GoBear help shed some light on the matter!
For starters, it is important to note that the main difference between a Term Life insurance plan and a Whole Life one is the length of each plan’s term, which is the time period during which an insurance plan is in effect.
- Term Life
Covers a very specific period of time or term, such as ten years, five years, or even one year in the case of AXA’s Online Term Life Plan for instance. If the policyholder suffers a loss of life only within this term, his or her benefactors will be given the death benefit – in the form of a lump sum of money – arising from the Term Life plan in question.
- Whole Life
Covers the entirety of the policyholder’s lifetime, ranging from the day the plan comes into effect to the day the policy-holder dies. Once insured under a Whole Life plan, a policyholder’s benefactor(s) will be able to make claims through this plan regardless of when he or she loses his or her life.
At what age are you eligible for your life insurance protection?
- Term Life
Term Life insurance plans are generally only available to those between 16 and 65 years old. They can also only be purchased if the policyholder does not exceed 75 or 80 years of age at the end of coverage term.
Exact age restrictions vary from one insurance provider to another. For illustration, only individuals between the ages of 16 and 65 may become policyholders of Prudential’s PRUterm plan.
- Whole Life
Available to those up to 70 years of age and are not equipped with limitation in terms of the policy-holder’s age at the end of the plan’s term.
The precise entry age limitation depends on the requirements of each insurance provider and the type of plan being purchased.
What are the differences in how much you’ll be spending for your life insurance policy?
- Term Life
Typically lower premiums and are usually recommended for those who have other immediate financial priorities but would still like to have a certain degree of life protection. Also for those who foresee that their lives will be at high-risk over the next few years.
An example of those who would benefit most from this type of plan would be new parents, as the first few years leading up to or after a child’s birth can be an expensive affair that is also physically rough on the health of these parents.
- Whole Life
Whole Life plans cover you for life, naturally making them more expensive. They are recommended for those who are not tied down by urgent financial commitments and have secure sources of income.
You can opt to have a portion of the premium paid for a Whole Life plan saved as an investment, which would in turn give you profits and dividends. Allianz’s PowerLink plan is an example of this option.
Whole Life plans also have a guaranteed cash value, which is a cash account that grows with each premium payment you make. Once a specified amount is reached by this account, you can withdraw the money for usage or use it to pay future premiums too.
Basic Sum Assured
How much coverage and benefit are you entitled to?
- Term Life
Term Life insurance plans have smaller assured sums – that is, the death benefit or the amount of money a policyholder’s benefactors will receive if he or she suffers the loss of life. Insurance providers may also place caps on the minimum amount of money that can be insured.
eLife Protector by AXA, for example, caps their maximum coverage at RM500,000. Meanwhile AIA’s A-LifeProtectTerm, caps its minimum sum assured at RM25,000 (maximum amount subject to underwriting).
This assured sum will be the only payment received upon a Term-Life policy-holder’s death.
- Whole Life
Whole Life plans tend to be more comprehensive, and come with the option of attaching riders or additional features. This makes their assured sum substantially larger, sometimes amounting to over RM1,000,000.
Some of the sum assured, which represents the policyholder’s death benefit, may be withdrawn for urgent use before the policy matures or the death occurs in Whole Life policies. This is called a partial surrender of the policy.
What else do you need to know?
- Both categories of plans may require policy-holders to undergo medical examinations during the application process for a plan.Some term-life plan providers like Fi Life (previously U For Life), however will make it apparent from the get-go that such an examination is not needed, as they only need to perform simple underwriting for their clients.
This differs from one insurance provider to the next, and you should seek to clarify the requirements of a plan with an insurance agent or read up on its full product disclosure sheet online before signing up.
- You should also account for your personal needs when choosing between the two categories of plans. Consider if you are in need of life insurance immediately despite facing large and urgent financial commitments, or if you are financially comfortable enough to sustain a long-term life insurance plan.
Now that you’re more familiar with the differences between Term Life and Whole Life insurance plans, what will you opt for if you were to buy a plan today?
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