Should you convert your term life insurance to a full life insurance policy?

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

You want to offer your dependents long-term financial protection

Unlike term life insurance, full life insurance covers you and your dependents for life, that is, up to age 99 or death. When you die, your life insurance nominees are guaranteed a lump sum payment that can help cover the costs of medical debts you incurred in your final years, for example. This makes life insurance particularly beneficial for your spouse or children who are not financially independent and who need some sort of financial safety net after your death.

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Similarly, full life insurance offers more stable protection than term life insurance. Since term life insurance lasts for a fixed period of time, such as 5 or 20 years, it will not pay out unless you die or become permanently disabled within the policy period. With a full life insurance plan, you can rest easy knowing that you have lifelong financial coverage.

You now earn more money and can afford an entire life insurance plan

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

Table comparing direct purchase premiums for whole life and death.

But even if you earn more, it is important to see whether you can pay the new insurance premiums. As an example, let’s look at Direct Purchase Plans (DPIs). While DPIs are designed to be affordable, the average DPI full-life insurance plan with an insured amount of S$200,000 and a policy term of up to 85 years will costs a 25-year-old man 1095% more then a DPI term life insurance policy with the same insured amount, but up to the age of 65.

That said, if you can afford whole life insurance and any riders that extend your coverage range, then the long-term protection may be worth it. In addition, some life insurance plans have a limited payment option that allows you to pay higher premiums up front, so you can be without payment after the premium period (and still enjoy lifetime coverage).

You want the option of a cash payout

Unlike term life insurance, full life insurance has the ability to build cash value through guaranteed and non-guaranteed bonuses. Unlike term life insurance, where you get nothing if you cancel your policy, you may be able to cash out the cash value of your entire life insurance policy if you cash out the policy after the surrender period. However, this can be risky as surrendering the policy too early can result in high termination costs and get back less than what you invested. Nevertheless, this payout can help significantly if you are in a financial emergency and need quick cash.

The cash value of your life insurance is made up of guaranteed and non-guaranteed returns. With a participating policy, your payout includes your insured amount plus any accrued bonuses. With a non-participating policy you will not receive any bonuses, but you will still be insured of your insured amount as long as you have not surrendered your policy.

As an investment only, full life insurance may not be suitable for serious gains. However, if you’re looking for a long-term life insurance policy with the added bonus of a possible cash payout, a whole life insurance policy can do just that for you.

You want to save money when your health changes

Renewing term life insurance becomes more expensive as you get older and develop new health problems. For example, a 25-year-old non-smoking man would be charged a monthly premium of S$9.80 for term life insurance, while a 55-year-old man would have to pay S$62.09 for the same. These costs can multiply quickly, especially if you have to renew your life course plan every 5 to 20 years.

Full life insurance allows you to pay fixed premiums for a limited time, such as 20 years, but you will remain covered until you die. There’s no need to renew, meaning you don’t have to worry about deteriorating health conditions or age affecting future premium rates.

To convert or not to convert?

Life insurance may be more expensive than term insurance, but it’s worth considering, especially if your family depends on you and you can afford it. Not only does full life insurance provide stable, long-term financial protection, but it also provides an additional opportunity to build your savings thanks to the cash value feature. If you are interested in convert your term life insurance policy, you will probably have to wait for the term of office to expire. However, your provider may offer the option to convert your term life insurance policy directly to a lifetime policy. This method is particularly useful, especially if a conversion does not require you to undergo a new health assessment, as any health problems you may have developed will not be excluded from coverage.

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