Term Insurance Duration: Choosing the Right Coverage Period
This publication has not been reviewed by the Monetary Authority of Singapore
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When considering term insurance, one of the most important decisions you’ll make is determining the coverage period, or how long the policy will provide protection. The term duration significantly impacts the policy’s cost, suitability, and the level of financial security it offers. In this article, we’ll explore the factors to consider when selecting the term insurance duration that aligns with your unique circumstances and needs.
Understanding Term Insurance
Term insurance is a straightforward type of life insurance that offers coverage for a specific period, such as 10, 20, or 30 years. Alternatively, you have the option to select term coverage until the ages of 60, 65 or 70 etc.
Unlike whole life insurance policies, term insurance doesn’t accumulate cash value but focuses on providing a death benefit to beneficiaries if the insured passes away during the policy term.
Since the term insurance duration is to be selected from the begining, how long should I be insured?
Factors to Consider for Term Insurance Duration
Here are some factors to consider for term insurance duration for your specific needs.
Financial Obligations
The term insurance duration should match your financial responsibilities. Consider how long you’ll have dependents, outstanding debts (like mortgages), and major financial commitments. If you have children or a spouse who relies on your income, a term that covers their needs until they are financially independent might be appropriate.
In Singapore, a daughter’s reliance typically extends until the age of 23, following the completion of her tertiary education. In the case of sons, this dependency usually continues until the age of 25, following their completion of national service and tertiary education.
Retirement Age
Evaluating when you plan to retire is crucial. If your retirement is approaching, a shorter term might be more suitable. On the other hand, if you’re younger and anticipate working for several more years, a longer term could provide the desired protection.
Protect your Family with Term Insurance
Get a $1,000,000 term insurance policy for $38.80 per month.
(Male age next birthday 30, non-smoker, cover for 30 years)
Affordability
Longer terms often come with higher premiums. While having coverage for an extended period is beneficial, it’s essential to choose a term that aligns with your budget. Consider the balance between affordability and the coverage duration you need.
Long-Term Goals
Think about your long-term financial objectives. If you’re using the “Buy Term and Invest the Rest” strategy, your term duration might align with the time it takes for your investments to grow and provide financial security.
Is it more advisable to purchase term insurance up to the age of retirement or extend it to cover until age 99?
Buying Term Insurance to Retirement Age
Cost-Effective
Term insurance policies with coverage until retirement age (typically around 65-70) tend to be more affordable than policies extending to age 99. This can make it easier to maintain coverage during your working years.
Temporary Needs
If your primary goal is to cover temporary financial needs such as paying off a mortgage, providing for children’s education, or replacing income during your working years, a term policy that aligns with your anticipated retirement age could be sufficient.
Transition to Savings
As you approach retirement, you might have accumulated savings, investments, and reduced financial obligations. This could make the need for life insurance less critical, as you might be less reliant on its payout for financial support.
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Buying Term Insurance to Age 99
Long-Term Protection
Opting for coverage until age 99 provides protection for a more extended period, which might be beneficial if you have ongoing financial responsibilities, dependents, or if you wish to leave a legacy for your heirs.
Estate Planning
If you have specific estate planning goals or wish to leave behind a financial legacy, having coverage until age 99 can ensure that your beneficiaries receive a payout regardless of when you pass away.
Premium Comparison: term to age 65 vs term to age 99
Now, let’s analyse and contrast the premium costs for term insurance with coverage up to retirement age and coverage extended to age 99.
Let’s use an example of male, non smoker with $1,000,000 death and total & permanent disability cover for age next birthday (ANB) 30 and 40.
| Term to age 65 | Term to age 99 | |
| ANB 30 | $49.20 per month | $250.40 per month |
| ANB 40 | $85.85 per month | $418.35 per month |
Just like the “buy term and invest the rest (BTIR)” approach, you can also allocate the premium difference for regular investments until the term policy reaches its maturity.
In the case of the male, ANB 30, there exists a difference of $2,414 per year (($250.40 – $49.20) x 12). By directing this sum towards an index fund / ETF / Unit trust portfolio with a 7% rate of return, your accumulated amount would exceed $330,000 by the time the policy expire at age 65.
This amount can potentially grow to > $1.2 million by the time he is 85.
What about the duration of critical illness insurance?
Should Critical Illness coverage be aligned with retirement age or extended to cover until age 99?
The need for critical illness insurance typically decreases after retirement due to several factors related to financial stability, lifestyle changes, and health considerations. Here are some reasons why there might be less need for critical illness insurance after retirement:
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Reduced Income Dependency
After retirement, individuals are less likely to be dependent on earned income for financial support. Critical illness insurance is often designed to provide a financial safety net when income is disrupted due to medical treatment.
On top of retirement savings, Singaporeans can withdraw their excess CPF funds from the age of 55 onwards. In addition, lifelong monthly income from CPF LIFE will also start from age 65. In retirement, this dependency decreases, making the coverage less essential.
Decreased Debt
Many retirees aim to pay off debts before retirement, reducing the financial strain on their beneficiaries. With fewer financial obligations, the need for a large lump-sum payout from critical illness insurance decreases.
Savings and Investments
Retirees often rely on savings, investments, and retirement accounts (including CPF and CPF LIFE for Singaporeans) to provide financial security. These resources can help cover medical expenses, should they arise, reducing the urgency for critical illness insurance.
Protect your Family with Term Insurance
Get a $1,000,000 term insurance policy for $38.80 per month.
(Male age next birthday 30, non-smoker, cover for 30 years)
Healthcare Coverage
In Singapore, a significant portion of residents are enrolled in integrated shield plan, a program that offers comprehensive coverage for a wide range of medical treatments (including hospitalisation & surgeries). This reduces the financial burden of critical illnesses. If you do not have an integrated shield plan yet, please consider getting one as a priority in your insurance planning.
Affordability
Critical illness insurance premiums can increase as individuals age, making it potentially less affordable in retirement. Balancing the cost of premiums against the potential benefit becomes a consideration.
It’s important to remember that individual circumstances vary. While critical illness insurance may become less essential for many retirees, some individuals might still find value in having such coverage based on their unique health history, financial situation, and personal preferences. Consulting with a financial advisor can help you assess your specific needs and make informed decisions about critical illness insurance in retirement.
Premium Comparison for critical illness coverage
Now, let’s analyse and contrast the premium costs for a CI rider with coverage up to retirement age and coverage extended to age 99.
Let’s use an example of male, non smoker with $300,000 critical illness rider for age next birthday (ANB) 30 and 40.
| Term to age 65 | Term to age 99 | |
| ANB 30 | $40.15 per month | $107 per month |
| ANB 40 | $83.10 per month | $194.15 per month |
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In conclusion, how long should I be insured? Choosing the right term insurance duration requires a thoughtful assessment of your unique circumstances, financial goals, and obligations. Consider factors such as your family’s needs, retirement plans, budget, and long-term objectives. By aligning the term duration with your individual situation, you can secure the necessary protection and provide your loved ones with the financial security they deserve. Remember to consult with a financial advisor to receive personalised guidance tailored to your needs.
Leon Lim (Indra Julie)
Leon is a Certified Financial Planner with over 15 years of experience in the finance industry. Leon is passionate about helping PMEBs (Professionals, Managers, Executives, and Business Owners) achieve their retirement goals and attain financial freedom.
