Understanding term insurance

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05 Nov 2018 | 3 min. read

Term insurance products provide pure protection. They are the simplest life insurance products and usually the most affordable. Find out more here.

Key takeaways

  • Dependants' Protection Scheme is a type of term insurance.
  • Term insurance pays out only upon death or total and permanent disability and only within a fixed period of time.
  • Term insurance is usually cheaper than other forms of life insurance.

What is term insurance?

Term insurance is life insurance that provides insurance coverage only for a fixed period of time. An example of term insurance is the Dependants' Protection Scheme.

Buy term insurance if you only need protection coverage for a fixed period of time. For example, if you want to be covered until your youngest child completes university or is financially self-reliant.

How it works

Here is a snapshot of the features and benefits:

Type Pure protection product
Main objective Protection only
Scope of coverage
  • Covers death
  • Most products cover total and permanent disability and some products cover major illnesses
  • Payment schedules and definitions of disability vary across products and insurers
  • Fixed term protection may range from 5 to 40 years. Sum assured remains the same throughout
Cash value Typically none
Investment risk None as no money is invested
Premium level and charges
  • Premium is constant throughout the period, except when renewed, converted or reinstated.
  • After that, premium is revised according to your age upon renewal.
  • It typically requires lower premiums than bundled products for the same level of sum assured*.
Features
  • Two types of term insurance: fixed or decreasing coverage.
  • The sum assured of decreasing term coverage products (e.g. those used to cover the default of a housing loan) will reduce and become zero by the end of the term.
  • May be renewable or convertible. Often, premium when exercising renewal is not guaranteed. There will be conditions attached before conversion to another type of product (e.g. whole life, endowment or investment-linked) is allowed.
Riders Riders can be attached to enhance the benefits provided by the policy. As this may vary from product to product, check with your insurance company for more details.

* The premium for a term product may be higher than the bundled product if it provides a higher death benefit, longer coverage term and premium term.

Things to note

  • Choose the coverage term carefully. You and/or your dependants will not be protected after the term expires.
  • If you choose to reinstate the policy after it expires, you may be subject to underwriting. Consider buying term insurance for a longer period of protection when you are younger because the premiums can increase substantially as you get older.
  • You may not be able to get term insurance past a certain age.

Common types of term insurance

Here are two common examples of term insurance:

Dependants' Protection Scheme

Dependants' Protection Scheme (DPS) is an optional term insurance plan that covers CPF members for a maximum sum of $46,000.

DPS provides CPF members and their families with some money to tide them over the first few years after the death of the insured member or confirmation of permanent disability. Coverage is worldwide.

DPS works on an automatic opt-in basis. Unless you opt out, the annual premium is automatically deducted from your CPF account. The scheme is extended to CPF members when they make their first contribution to CPF.

Group insurance schemes

A group insurance plan provides coverage to members of a group. Members tend to be employees of a company or members of an organisation. They usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.

MINDEF/MHA Group insurance is a type of group insurance for all full-time and operationally-ready National Servicemen, regular servicemen, and volunteers (SAF Volunteer Corps, NS Volunteers, SPF Voluntary Special Constabulary and Civil Defence Auxiliary Unit).

Last updated on 07 Nov 2018