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What is life insurance?
Life insurance is designed to provide a payout to the policy's beneficiaries when the insured person passes away.The money helps support loved ones cope during such unexpected and challenging times. For those who are the main financial providers in a family —such as individuals with parents, spouses, children, or outstanding debts like mortgages, life insurance serves as both a financial planning tool and a form of protection.
Term vs Whole Life Insurance Comparison
Term Life Insurance
Term life insurance is a life insurance product with a set coverage period (e.g. 5, 10, or 20 years). If the insured person passes away during the policy term, the beneficiary receives a lump sum death benefit. The coverage and payment periods are usually the same. There is no savings component, so when the policy ends, no cash value or dividends are returned. Compared to whole life insurance, the main benefit of term insurance is that with the same coverage amount, the premium is lower. This means buyers can secure equal or greater protection with a more affordable premium by choosing term insurance.
Whole Life Insurance
Whole life insurance differs from term insurance in terms of premium, payment duration, and coverage period. It features a fixed payment period—once the premium is set at purchase, it remains unchanged regardless of future changes in health and is not affected by inflation. After finishing the payment period, the insured can then enjoy life-long coverage. Another key distinction is the savings component: bonuses not withdrawn are retained within the policy account, accumulating further and offering potential for growth.
| Term Life Insurance | Whole Life Insurance | |
|---|---|---|
| Savings Component | No savings component, belongs to the non-savings type of life insurance. | Has a savings component ;belongs to the savings type of life insurance. |
| Coverage Payment Period | Typically short coverage periods, such as 5, 10, or 20 years, matching the premium payment period. Often includes renewable terms. | Premiums paid for a specified term, fixed at the time of purchase, coverage lasts a life time. |
| Premium (same coverage amount) | Lower premium. | Higher premium. |
| Coverage Amount (same premium) | Higher coverage amount. | Lower coverage amount. |
How to Choose Between Term and Whole Life Insurance?
1. Affordability of Premiums and Coverage
If you are the main financial provider in your family, responsible for raising children, caring for parents, and repaying loans, and find it difficult to commit to higher insurance premiums, consider using term life insurance for basic protection. Term insurance offers flexibility in choosing the coverage period, ensuring protection without too much financial burden.
On the other hand, if you are financially secured, and in need of a higher coverage amount and longer protection period, while also wishing to use insurance as a tool for savings and wealth accumulation, whole life insurance would be the better option.
2.Needed Coverage Duration
Assume you are 30 this year, and buying a term life policy with a 20-year coverage period will be insured from age 30 to 50. Upon policy expiration, renewal will be needed to maintain coverage, and the premiums will be adjusted based on age. Meanwhile, whole life insurance's premiums are set at the time of purchase the amount will not change and coverage remains valid for life, regardless of any future health changes, eliminating the risk of insurance lapse.
Things to Note When Buying Life Insurance
Cooling-off Period
Most life insurance policies offer a 21-day cooling-off period, allowing policy owners to review the policy terms thoroughly. If you decide to cancel the policy during this period, you can notify the insurer in writing and receive a refund of all premiums and levies paid (excluding interest).
Exclusions
One common exclusion in life insurance is death caused by suicide within the first 12 or 13 months after the policy becomes effective.
In conclusion, life insurance mainly serves as a financial protection to lessen the impact of losing a family's economic pillar. Therefore, it is essential to choose a suitable policy based on your financial situation and stage of life.
FWD Term Life Insurance
FWD's MyTerm Plus Term Life Insurance Plan (MyTerm Plus)1 is a pure term life insurance. It offers coverage of up to HK$8 million2, with a total compensation amount of up to HK$24 million 3. It provides flexible renewal options of yearly ;or 10-year, allowing you to make decisions based on your mortgage repayment period or other protection needs. During the 10-year renewal term, the premium rate remains level and guaranteed not to change4.
Frequently Asked Questions
FWD is dedicated to sharing with you related to health, lifestyle, wealth, and insurance. You can complete an application through FWD Online Insurance Platform in as quickly as 5 minutes.
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