As an independent financial advisor, I often get asked about the different types of term insurance policies available in Singapore. Two of the most popular options are level term insurance and reducing term insurance. While both offer protection for a set period of time, there are some key differences between the two that make one option more suitable for certain individuals.
Level term insurance provides a fixed amount of coverage for the entire policy term. For example, if you purchase a level term insurance policy with a death benefit of $500,000 for a 20-year term, your beneficiaries will receive $500,000 if you pass away anytime within those 20 years.
One of the main advantages of level term insurance is that it is typically less expensive than other types of term insurance. This is because the risk for the insurance company remains constant throughout the policy term, so they are able to offer lower premiums.
Another advantage of level term insurance is that it offers more stability and predictability. Since the death benefit remains the same throughout the policy term, your beneficiaries can count on a certain amount of financial support in the event of your death.
However, there are also some drawbacks to level term insurance. One of the main drawbacks is that the premiums may increase over time, it depends if you have chose a 5 year renewable, a 10 year renewable or fixed term non renewable, which may or may not make it more expensive to maintain coverage as you get older.
Reducing term insurance, on the other hand, provides a death benefit that decreases over time. For example, if you purchase a reducing term insurance policy with a death benefit of $500,000 for a 20-year term, the death benefit may decrease by a certain amount each year.
One of the main advantages of reducing term insurance is that it is typically less expensive than level term insurance. This is because the risk for the insurance company decreases over time as the death benefit decreases, so they are able to offer lower premiums.
However, there are also some drawbacks to reducing term insurance. One of the main drawbacks is that the death benefit may not be enough to cover your debts and other financial obligations if you pass away later in the policy term. In addition, the decreasing death benefit may not keep pace with inflation, which could leave your beneficiaries with less purchasing power in the future.
Overall, both level term insurance and reducing term insurance have their pros and cons, and the right choice for you will depend on your individual needs and financial situation. While reducing term insurance may be more affordable in the short term, it may not provide enough coverage in the long term to meet your financial needs.
As an independent financial advisor, I can assist you in making the right choice by reviewing your financial portfolio and helping you determine the amount of coverage you need to protect your loved ones in the event of your death. By taking a holistic approach to your financial planning, I can help you find the right term insurance policy to meet your needs and budget.
