Buying a term life insurance can be a daunting process, with the myriad of choices available. Contrary to paying for the traditional life insurance policy, term life offers a lower premium payable for the term of the insurance and greater flexibility.
The premium duration differs from yearly renewal to fixed years depending on how the insurance company allocates. Generally, the yearly renewal policy will cost the least, as the insurer’s health condition may deteriorate over time and the premium will most likely rise.
Example:
If Jon buys an FWD term life yearly renewal policy, it will cost $8.35/month. If he chooses to apply for a fixed term of 5 years, the premium payable will be $8.54/month. This works out to a difference of $11.40, assuming that the yearly renewal premium does not change for 5 years. This is often not the case, as the premium will get more expensive as Jon gets older. Thus, the longer the duration, the more expensive it is to get a yearly renewing policy.
Considerations?
If I were to decide on what I should buy, there would be a few considerations to think about. If I am a student without a stable income, I will consider buying a term life that renews yearly. Once I graduate and start working, I would consider upgrading to a longer fixed term policy.
Premiums
| Company | Yearly Renewal | Fixed Renewal (5 years) | Fixed Renewal (20 years) | Maximum Premium |
|---|---|---|---|---|
| FWD | $8.35 | $8.54 | $13.01 | $27.45 (47 years) |
| Singlife | $7.30 | – | – | – |
| AIA | – | $9.57 | $13.22 | $27.45 (till age 65) |
| Great Eastern | – | – | $16.00 | $89.55 (till age 100) |
What are my choices?
When choosing a term life insurance, newer companies like FWD and Singlife with Aviva offer policies with competitive pricing, especially with Singlife with Aviva’s yearly renewal plan as low as $7.30 for Jon. Larger incumbents like AXA and AIA do not serve this segment of the market.
However, as you mature and become more financially stable, your options open up. Longer premiums should be your consideration, as age and health conditions will increase the premium prices.
The more affordable plans like the FWD plan are spartan and do not offer certain coverage like total permanent disability or critical illness. These coverages can be added to the basic plan with an additional cost on top. Even with the riders added to the FWD insurance, the premium is still lower. FWD also covers 35 critical illnesses, as opposed to AIA’s 30 while Great Eastern covers 37.
Incumbents like the AIA or Great Eastern are simpler to choose, having a set age where the policy expires. FWD offers a different model, where you select the number of years for your fixed term, ranging from 5 to 47 years.
For those who are worried about the premium expiring before any major issues, they could opt for a plan that expires after the insurer crosses the age of 99 or 100-year-old, from AXA and Great Eastern. If you are looking for a plan of such length, you might want to consider getting normal life insurance instead.
It is worth noting that when buying term life insurance, lump sum payments often will lead to some form of discount. For example, the FWD term life yearly renewal cost $8.35/month, but $95.20 yearly. The yearly payment cost $5 less in total as compared to the monthly payment. Furthermore, if you can find discount codes for Singlife, Great Eastern or FWD, it will help in reducing the premium amount payable.
Health status is also a factor to consider. FWD offers no health declaration if you are a non-smoker under the age of 30 and in the pink of health. AIA guarantees renewal for the 5-year term regardless of health condition.
In conclusion, FWD offers the best policy overall, but it is important to do your own research. You should find out what are special requirements that you might need, like more critical illness coverage, longer-term life or no health declaration.
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