In our previous article "Fixed or Renewable – Which is the better term insurance?", we explained how different term plans are suitable for different purposes. In part 2 of this article, we highlight the several scenarios where a renewal term insurance may be the more suitable option for you.
Fixed vs renewable term plan
There are two types of term insurance, namely fixed term and renewable term plans.
Fixed term plan |
Renewable term plan |
|
Period of insurance |
For a fixed time period |
Requires regular renewals |
For example |
Covers for up to 40 years or to the ages of 55, 60, 65 or up to age 85 |
To be renewed every year, every 5 years or every 10 years |
Upfront premiums required |
Higher |
Lower |
Premium type |
Level premiums |
Premiums are non-guaranteed at each renewal and are likely to increase with age. |
Guaranteed insurability |
From the inception of your term plan |
From the inception of your term plan |
Guaranteed insurability
With fixed term plans providing coverage over an extended period of time, this guarantees your insurability from the moment that your plan in incepted. Likewise, renewable term plans will also guarantee insurability upon the inception of your plan. Future renewals will not be affected by any new health conditions that you may have. Therefore both plans are able to guarantee your insurability upon the inception of your term plan.
#1 Renewal term insurance to cover a mortgage loan
As the premiums of a renewable term plan is likely to increase with age at each renewal, we recommend using a renewable term for short term coverage. An example would be to use a 5 year renewable term plan to cover a housing loan that will be paid off in 5 or 10 years. Doing so will allow you to get a cheap yet sufficient coverage that you need for your outstanding mortgage loan. You may also choose to coincide the coverage period with your outstanding loan duration. This allows you to terminate your term plan once you have paid off your housing loan and no longer require coverage.
(See "What should I do with my maturing endowment plan?")
#2 Renewable term insurance for a foreigner working in Singapore
A foreigner who is currently working in Singapore on a working pass may also find a renewable term plan suitable for him/her. This is because there may be uncertainties as to long how he/she will be based in Singapore and/or whether his/her work permit will be renewed. With such uncertainties, they may not wish to commit to a long term plan therefore making a 5 or 10 year renewable term suitable for their needs. Additionally, renewable term insurance requires a lower upfront premiums and therefore may be more cost effective.
(See "3 Reasons An International Health Plan Is For You")
#3 Renewable term plan as a gift of insurability for your child
As a child with no dependents does not need life insurance, parents considering insurance for their child should instead focus on locking in the insurability of their child. This means to get coverage for your child so as to ensure that he/she is covered should he/she develop any health conditions that may prevent him/her from buying insurance in future. As this is intended for temporary coverage, parents may consider getting a 5 or 10 year renewable term plan for their child. These term plans can be renewed with guaranteed insurability at the end of each policy cycle or terminated if coverage is no longer required.
Not only will getting a renewable term keep the cost of coverage low, but most renewable term plans will also offer the option to convert to a whole life insurance plan in future should he/she wish to do so. In the event that your child does not wish to keep this renewable term plan, he/she may also switch to other coverage options.
(See "How much should I be spending on insurance for my child?")
#4 Renewable term plan for short term coverage
Lastly, an older individual who wish to supplement his life coverage for a short period until his retirement may also consider a renewable term plan (e.g. a 54 year old who wants coverage until he retires in 5 years). In such a scenario, a renewable term may be a suitable option as the coverage period is relatively short (i.e. just 5 to 10 years) and he/she may benefit from the lower upfront premiums of a renewable term.
Profile: Age 54, non-smoker male for $500,000 death and total permanent disability (TPD) coverage to age 65.
End of Policy Year / Age |
Fixed term plan |
Renewable term plan |
Sum Assured |
|||
Annual Premiums |
Total Premiums Paid To-date |
Annual Premiums |
Total Premiums Paid To-date |
|||
1 / 55 |
$1,710 |
$1,710 |
$1,633 |
$1,633 |
$500,000 |
|
2 / 56 |
$1,710 |
$3,419 |
$1,633 |
$3,265 |
$500,000 |
|
3 / 57 |
$1,710 |
$5,129 |
$1,633 |
$4,898 |
$500,000 |
|
4 / 58 |
$1,710 |
$6,838 |
$1,633 |
$6,530 |
$500,000 |
|
5 / 59 |
$1,710 |
$8,548 |
$1,633 |
$8,163 |
$500,000 |
|
6 / 60 |
$1,710 |
$10,257 |
*$2,409 |
$10,572 |
$500,000 |
|
10 / 65 |
$1,710 |
$17,095 |
*$2,409 |
$20,208 |
$500,000 |
|
*The premium rates shown above are the indicative premiums for future renewals at the time of each renewal and are not guaranteed.
Total premiums paid to-date does not take into present and future values. Accurate as of 19 April 2021.
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