Life Insurance

Should You Convert Your Term Life Insurance To Whole Life Insurance?

Term life insurance may seem like the best life insurance option because of its affordability. However, there are some cases where a whole life insurance plan may benefit you and your family more.

From straightforward coverage to affordable premiums, term life insurance is an easy option for many Singaporeans in need of life insurance. However, there may come a time when you want to consider investing in a whole life insurance plan instead. Whether it's switching providers after your term life insurance policy is over or taking advantage of your current provider's conversion option, switching from term to whole life is entirely possible and potentially the right choice to make. Here's 4 reasons why you may consider converting your term life insurance to whole life insurance.

You Want To Provide Long-Term Financial Protection To Your Dependents

Unlike term life insurance, whole life insurance covers you and your dependents for life, meaning until the age of 99 or death. When you die, your life insurance nominees are guaranteed a lump sum payout which can help cover the costs of any medical debt that incurred in your last years of life, for instance. This makes whole life insurance especially beneficial to your spouse or children who are not financially independent and would require some sort of financial safety net after you pass away.

Similarly, whole life insurance offers more stable protection than term life insurance. Since a term life plan lasts for a fixed period of time like 5 or 20 years, there won't be a payout unless you die or become permanently disabled within the policy time frame. With a whole life insurance plan, you can rest easy knowing that you have lifelong financial coverage.

You Make More Money Now and Can Afford A Whole Life Insurance Plan

You may have opted for a term life insurance plan in the past because it was simply much more affordable than a whole life insurance plan. But if you're now making significantly more money, it might be time to consider converting your plan to one that matches your higher net worth and any changes in your lifestyle that would require larger or longer-term protection. We recommend getting coverage that is at least 10 to 15 times your annual income, though you should also take into account any debt or financial obligations for your family.

Table comparing whole life and term life direct purchase premiums.

However, even if you are making more money, it's important to see whether you can afford the new insurance premiums. Let's look at Direct Purchase Plans (DPIs) as an example. Even though DPIs were designed to be affordable, the average DPI whole life insurance plan with a sum assured of S$200,000 and a policy term of up to age 85 will cost a 25-year-old male 1095% more than a DPI term life insurance plan of the same sum assured but up to age 65.

That said, if you can afford a whole life insurance policy and any riders that extend your range of coverage, then the long-term protection could be well worth it. Plus, some whole life insurance plans have a limited pay option that allows you to pay higher premiums up front, so that you can be payment-free after the premium tenure (and still enjoy lifelong coverage).

You Want The Option Of A Cash Value Payout

Unlike term life insurance, whole life insurance has the option of accumulating a cash value through guaranteed and non-guaranteed bonuses. Unlike term life insurance, where you don't get anything if you cancel your policy, you may be able to redeem your whole life policy's cash value if you cash out the policy after the surrender period. However, doing so can be risky as surrendering the policy too early can result in high termination fees and getting back less than what you put in. Nonetheless, this payout could significantly help if you are facing a financial emergency and need cash quickly.

Your whole life policy's cash value is built from guaranteed and non-guaranteed returns. With a participating policy, your payout includes your sum assured amount plus any accumulated bonuses. With a non-participating policy, you do not receive any bonuses, but you are still guaranteed your sum assured amount as long as you did not surrender your policy.

As solely an investment, a whole life insurance policy may not be adequate for serious gains. However, if you are seeking long-term life insurance with the added bonus of a potential cash value payout, then whole life insurance can do just that for you.

You Want To Save Money As Your Health Changes

Renewing a term life insurance plan becomes more expensive as you age and face new health issues. For instance, a 25-year-old non-smoking male would be charged a S$9.80 monthly premium for a term life policy, while a 55-year-old male would have to pay S$62.09 for the same. These costs can quickly multiply, especially if you must renew your term life plan every 5 to 20 years.

With a whole life insurance plan, you can pay fixed premium rates over a limited amount of time, like 20 years, but stay covered until you pass. There is no need for renewal, which means that you don't need to worry about a worsening health condition or age affecting future premium rates.

To Convert or To Not Convert?

Whole life insurance may be more expensive than term life insurance, but it's worth considering, especially if your family depends on you and you can afford it. Not only does whole life insurance offer stable, long-term financial protection, but it also offers an additional opportunity to build your savings thanks to its cash value feature. If you are interested in converting your term life insurance plan, you'll likely need to wait until its tenure has ended. However, you may find that your provider actually allows the option of converting your term life policy directly to a whole life policy. This method is particularly useful, especially if a conversion doesn't require you to undergo a new health assessment, as any health conditions you developed won't be excluded from coverage.

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Natalia Sanchez-Kumar

Natalia Sanchez-Kumar is a Junior Research Analyst at ValueChampion. She is a History graduate of New York University and has worked in the area of social impact, Future of Work and socio-technological research in the US and India. She has co-authored policy proposals alongside the International Labour Organisation in Sri Lanka and the Maldives, as well as hosted a data privacy conference with Facebook in New Delhi.

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