You may have owned or intending to get a Whole Life Protection Plan, but with so many different features and benefits out in the market, how do you make sure you are getting the best deal?
Basic and Optional Benefits Offered By A Whole Life Protection Plan:
- Basic Insurance coverages against Death (any causes), Total And Permanent Disability and the 30 Critical Illnesses (Dread Diseases). The payout is usually in a lump sum unless stated otherwise.
- (Optional but commonly added) Payout of 2 to 3 times the sum assured against death caused by Personal Accident.
- Cash Values that normally will break even around the 15-20 years period and the returns are averaging around 4% per annum (usually after the break-even). In terms of financial difficulties, you can take up a policy loan from your cash value (with the lowest interest rates as compared to commercial banks) without affecting your coverages.
- Varying Premium Terms ranging from a single lump sum to 5 years or to when you are 85 years old.
- For some companies, they may offer the choice of converting this plan to an annuity (what is an annuity? It’s a plan that pays you a monthly benefit from the cash value till the day you forget to breathe)
- Term vs Whole Life. In this comparison, the benefits of getting a Whole Life is that this plan still protects you after the age 80, most of the term plans offered have maximum age till age 80. We are slowly living past the age of 80. I have came across a pair of sweet couple (who are in their own lovely world) who feels the benefit (of the whole life) of leaving aside money to the other half (after age 80) should one decide to leave first.
Is this Plan for Savings Or Protection?
I would say much depends on how much are your liabilities. Most of the time people get this plan more towards protection. The savings are additional benefits when you have no more liabilities in life, you have saved enough for any emergencies; therefore these savings are more like retirement supplements.
The common trend that I am seeing that for most clients is that they will (same budget) get two plans separately – one plan is for protection whereas the other plan is for the savings benefits. When the time is ripe for retirement, the plan used for savings can be converted to an annuity or the cash value used for savings/endowment/investment purposes.
How About The Options Of Limited Premium Term?
When it comes to the option of limited premium term, everybody shrugs on the idea of paying till age 85.
But do you know there are a few advantages to paying till age 85? They are:
- You get a higher sum assured when you stretch a longer term with the similar budget as compared to a shorter term.
- Bascially a whole life plan pays on any causes of death. If you should forget to breathe just before 85, you are the winner in terms of premium saved.
- If you are investment savvy and strict in savings, the 4% per year return is not really that attractive. By stretching to a longer term, you can use the difference (for servicing a limited premium term) to go into investment savings which can generate bigger returns (around 10% returns per year and you get to set aside more money for emergencies)
How About The Advantages of Paying A Short Limited Premium Term? They are:
- If you and I do live past the age of 85, we actually serviced a smaller premium size for the shortest premium term as compared to servicing longer or till age 85.
- Do you know that you save more premiums if you service the shortest premium terms even though the upfront premiums are higher than the rest of the term choices? The savings can amount up to a few thousands.
- If you are getting this plan for your newborn, you get to save the most as the premium rates for your newborn is at the lowest. You will not feel the impact of the premium as you are more willing to set aside more money for your newborn.
How To Choose Then?
- If you know that you will really die early, get a premium term that stretches to age 85. Even better, get a term plan as the premium is even lower than a whole life.
- If you are above 45 years old, you should opt for the shortest premium term to get the break-even faster.
- If you are below 45, this will depend on your comfortable budget.
- If you are getting for your newborn or young child, opt for the shortest premium term to enjoy premium savings.
- If I have not mentioned areas that you need to choose, have a good chat with your financial planner to help you understand which is the better option.
I hope with this post, you have a better understanding of the benefits of a Whole Life Plan. Also if you are interested to understand which is a better option for you in terms of a Whoe Life Plan with limited premium term, I hope this post has given you a better understanding.
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