A whole life insurance plan is an insurance product that provides the policy holder with a covered benefit for life. The basic function of a whole life insurance plan is to provide a lump sum payout in the event of the death of the insured – if the policy is still in force. To qualify as a whole life insurance policy, the plan has to have a cash value where a policyholder can surrender and withdraw part of it, or the whole of it, as long as the cash value is available.

There are many limited pay terms that allow you to pay a single lump sum premium upfront. Additionally, policyholders have the option of choosing a five-year regular payment period up until age 99. The most common denominations are in the multiples of five at five years, 10 years, 15 years, 20 years, and 25 years.

Almost all whole life insurance plans in the market allow policyholders to add riders to their life insurance policies to enhance the coverage dynamism. Policyholders are able to customise their plan into a one-size-fits-all solution that includes one or all of the following coverages in one product:

• Total and Permanent Disability

• Advance Stage Critical Illness

• Early-Stage Critical Illness

• Multi Claim Critical Illness

• Hospital Cash

• Disability Income

• Multiplier Benefit

To do so, policyholders will need to top up an additional premium to include these features.

Some insurers have an annuity option featured in their whole life insurance plans where the policyholder can choose to convert them into an annuity plan. This is an excellent feature that enables the policyholders to enjoy a regular stream of income for a period of time, starting at a specific age. It also allows them to continue and let the plan provide a minimum amount of coverage without requiring the insured to effectively surrender their policies.

Multiplier benefits allow the insured to raise their sum assured by a factor of two to ten up until a certain age, usually 65 or 70. This effectively boosts the coverage by x number of multipliers during their active years. This may be a more affordable option compared to boosting the basic sum assured to the desired value. The purpose is to provide an additional amount of payout when the insured is younger and has more financial commitments.

Example: Tom purchases a whole life insurance plan with a four-fold multiplier until age 70 for coverage of a $50,000 sum assured in case of death, disability, and critical illness. This effectively increases his coverage amount to $200,000 due to the factors listed.

Thanks to the four-times multiplier benefit feature, should any of the three covered events strike Tom before age 70, he or his beneficiary will receive a lump sum payout of $200,000 even though his basic sum assured is only $50,000.

However, if the covered event were to occur after the age of 70, Tom or his beneficiary would l receive the $50,000 sum plus any accrued bonuses instead.

Cash value is a saving feature that is embedded in a whole life insurance policy, which is also the main reason why a whole life insurance premium is much higher than term insurance.

Cash value is the invested part of the premium that policyholders pay. They are typically invested in a pool of diversified assets managed by the insurance company's in-house or externally appointed fund managers.

The participating fund shares the profit of its investment with the policyholders in the form of yearly bonuses. Once paid out, the bonuses are guaranteed and accumulate throughout the policy term.

A participating whole life insurance policy provides a guaranteed cash value portion and a non-guaranteed cash value portion, typically shown in their benefit illustrations at 3.00% p.a. or 4.25% p.a. The cash value money accumulated will then be paid out to the insured’s beneficiary in addition to the sum assured in the event of the insured’s death or to the insured when he/she surrenders the policy.

The non-participating plan has guaranteed claims benefits and cash values, but it doesn't share in the investment profits of the insurers, as the name suggests.

You should get whole life insurance:

• If you want to leave a sum of money to your dependents, regardless of whether they are self-reliant or not, throughout your life.

• If you have the intention to provide coverage during your productive years and have the option to use it as a form of forced savings to supplement your retirement needs.

• If you want to provide for early-stage critical illness coverage for a longer period – for example, until the age of 85, but at the same time prefer to pay for a limited term rather than continue paying for the premium beyond your retirement years. (In some circumstances, this strategy may be cheaper than getting an early-stage CI stand-alone policy.)

• If you want to pay for a limited period and enjoy whole life coverage.

The primary distinction is that whole life insurance has a cash value. On the other hand, most term life insurance does not provide any return if the policyholder surrenders or terminates the plan. This is also the reason why whole life insurance in Singapore is more expensive than term insurance.