How To Choose Between Term Life and Whole Life Insurance

Planning your financial future often involves making critical decisions about insurance. In Singapore, life insurance is a cornerstone of financial security, offering a safety net for your loved ones. When choosing the best type of life insurance, such as between term life and whole life insurance, understanding their unique benefits and features is essential. This guide will explore their key differences, provide comparative insights, and help you make an informed choice.

Below are some of the main differences between term and whole life insurance coverage.

While term life insurance is ideal for specific financial goals like covering a mortgage or supporting children through school, whole life insurance is a lifelong investment offering enduring security.

Term life insurance is ideal for individuals seeking an affordable way to secure financial protection. With significantly lower premiums compared to whole life insurance, this policy is purely for protection. 

It provides coverage for a fixed term, such as 5 or 10 years, or up to a specific age, like 65, 75, or 85. Upon the policyholder's demise or in cases of total and permanent disability, within a fixed period of time, it pays out a lump sum to beneficiaries. Optional riders can also be added for enhanced coverage, such as critical illness protection.

However, term life policies do not accumulate cash value. Once the term ends, there are no payouts or savings, even after years of premium payments. 

Individuals opting for term life insurance should consider alternative ways to build their wealth or save for retirement, such as independent investments.

Some proponents argue that the cost savings from term life insurance could be invested to generate higher returns compared to the more expensive whole life insurance. 

Yet, this assumption overlooks the complexities of investment management. Achieving returns comparable to those generated by professional insurance firms requires substantial expertise and consistent market performance. 

Instead, term life insurance is more pragmatic for those with tighter budgets who still need robust protection against unforeseen events.

» MORE: Compare insurance plans

As mentioned, whole life insurance provides lifelong coverage and an added cash value component, making it a more comprehensive and beneficial option compared to term life insurance.

While it requires higher premiums, this added cost reflects the dual purpose of the policy—protection and wealth accumulation. 

A portion of the life insurance premium covers the cost of insurance, while the rest is invested in funds managed by the insurer, allowing the policy to build cash value over time.

There are two main types of whole life insurance policies: non-participating and participating. 

Non-participating plans offer guaranteed returns and tend to invest in conservative instruments, providing policyholders with predictable but modest growth. 

Participating plans, on the other hand, include both guaranteed and non-guaranteed returns, with the latter comprising bonuses and dividends. 

Moreover, whole life policies typically cover death and total and permanent disability. And just like term life insurance, riders can also be added to your policy to address specific concerns, such as critical illness coverage, providing tailored solutions for the policyholder’s unique needs.

*The death payout will be paid to the policyholder’s beneficiaries in the event of death.

The cost difference is primarily driven by the scope of coverage and additional features. Term life insurance focuses on pure protection, keeping costs low. Whole life insurance, with its investment component and lifelong coverage, demands higher premiums.

Below are the average annual rates for term life vs. whole life insurance

Term life insurance

Whole life insurance

Basic sum assured of S$100,000 for death & Total Permanent Disability (TPD):

Basic sum assured of S$100,000 for death & TPD, and S$50,000 for Early Critical Illness (CI):

Source: The average premium is calculated based on the data provided by MoneyOwl.com.sg and Smartwealth.sg as of November 2024 and February 2025. Please note that these are indicative figures only. Actual premiums will vary based on individual health, lifestyle, coverage amount, and specific policy terms. It is essential to obtain personalised quotes from insurance providers.

Select the right policy based on your financial goals and needs.

Choose term life if

• You're looking for a more affordable option in the short term.

• You need higher coverage for specific periods of your life, such as while paying off a mortgage or raising children.

• You're in your 30s and want to ensure your loved ones are financially secure without paying expensive premiums.

• you want straightforward protection without the cash value accumulation.

Choose whole life if:

• You want lifelong protection.

• You're interested in a policy that builds cash value over time, which can be used for retirement or other financial needs.

• You're looking for a long-term investment as part of your financial planning.

• You want to combine protection and savings.

• You want the option of income payout during retirement.

» MORE: High protection coverage at affordable premiums

If neither term nor whole life insurance aligns with your needs, there are other alternatives you can choose from. But keep in mind that these alternatives typically come with differing costs and benefits based on the coverage you select and how your cash value performs. 

• Universal Life Insurance: This type of insurance provides coverage with an investment component. While it offers the potential for financial growth, it requires careful evaluation due to potentially high initial premiums, intricate fee arrangements, and the risk of policy lapse if investment returns fall short or if loans taken to cover premiums remain unpaid.

• Endowment Plans: These policies merge life insurance with savings, providing a lump sum payment either at the end of the policy term or in the event of death.

• Investment-Linked Plans (ILPs): These plans integrate life insurance with investment options, offering the potential to build wealth alongside life coverage.

When in doubt, consulting an advisor or comparing each type of life insurance is an excellent way to start choosing the most suitable type according to your needs.