Term Life Insurance - Not All Are Made The Same.

Last week, a client asked me to help examine a very affordable type of term life insurance policy that all Singapore NS-men are entitled to purchase - Aviva SAF Group Term Life policy. He wanted to know if it is a better deal as compared to the other term insurance plans out in the market.

First and foremost, it is a common misconception that all term life insurance policies are the same. It is also incorrect to assume that since all term policies are the same (which is not true), then the one with the cheapest premium is the best.

Different insurance policies have different wordings, and what may be claimable from one policy may not be claimable from another. Also, different insurance companies differs in claim experience, cost of operations and distributions, size of their life funds, and investment performance. When it comes to service, different insurers also differs in continuous client engagement, speed and ease of claims, and personalised customer support through agents.

Therefore saying all insurance policies and insurers are the same is akin to saying all car manufacturers are the same. Mercedes-Benz and Chery can both provide a car, with 4 wheels, an engine, and can take 5 persons from Point A to Point B. So why the huge difference in price and perceived value?

For those of you are have SAF Group Term Life policy, or if your spouse or family member has it, I would say it is an useful policy to keep. However it may be inadequate to replace other term policies that you have, or may be considering to buy. Here are the reasons.

 

Death Benefit

The SAF Group Term Life is most efficient for coverage up to age 65.

After 65, the Death cover will drop to a cap at only $100,000, regardless of the amount of cover you have prior to the drop. Even if you have the maximum $1 million cover, you will only be insured with $100,000 after 65. The insurer is able to price the coverage cheaply because in most cases, majority of deaths should statistically happen after 65. Therefore by capping the coverage to $100,000 after 65, they are effectively limiting their obligations to a manageable level and not be over-exposed to high risk of claims. Without doing so, the premiums collected might not be able to sustain high frequency of claims.

After 65, the premiums increase almost nine-fold! For example, premium for $100,000 cover at age 66 costs $109 monthly, as compared to only $12.80 monthly before age 65. This allows the insurer to collect more premiums to prepare them for a higher chance of death payouts

Therefore it is an important consideration if you wish to be covered after 65. Reasons for having cover after 65 include ensuring a comfortable retirement for spouse, clearing off debts, and legacy for children/grandchildren.

Also, do note that the maximum cover age limit is until 70 years old. The policy does not provide any cover after that. Therefore for legacy planning, this may pose a limitation as you may outlive your policy.

 

Disability Benefit

SAF Group Term Life policy's Disability cover (due to illness) only pays out if one is unable to work in any occupation. See the wordings of the policy highlighted by the red box.







Therefore a blind person who can make a living as a telemarketer (one such lady in my office building) would not qualify for a claim. Nor would a stroke survivor who is unable to use one side of the body (one of my colleague) but able to work as a consultant.

This is similar to a case last year, whereby a disability claim under the NTUC Income Dependents Protection Scheme policy was rejected. The claimant was a wheelchair-bound person who lost the use of both legs, but able to do some sedentary office work. The claim was rejected on the basis that the claimant could still work, and earn an income. (See below attached article).
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Here's NTUC Income's reply:



In contrast, another insurer pays out disability on 2 triggers:
  1. Unable to work in any occupation
  2. Loss of use of both eyes, or 2 limbs excluding hands and feet, or 1 eye and 1 limb excluding hand and feet. 
Hence on the 3 scenarios mentioned above, if caused by illness, would qualify for a pay-out with Company P, whereas it wouldn’t qualify for a claim under the SAF Group Term Life.
 
In all fairness, SAF Group Term Life still is able to cover blindness and loss of limbs if it is due to an accident.

 

Terminal Illness Benefit

Terminal Illness is defined as a disease that is likely to cause death within 12 months. SAF Group Term Life policy pays a 50% advancement of the Death benefit when this is medically certified. However, many policies in the market pays out 100%. 

One may need a larger sum of money when combating a terminal illness, rather than after having passed away because of it. This payout may be crucial in alleviating the cost of medical expenses at the most financially draining stage. If given a choice, would you rather receive a larger payout while you are alive but fighting a disease, or after you are gone?

Summary

As you can see, there are many finer elements that you may not have known of, as most are not trained to understand and analyse insurance policy documents, which is inherently a complex legal document. Yet, those unaware of what they are covered for end up paying the price when a claim is declined.

SAF Group Term Life is a cost-efficient policy that is meant to provide affordable cover for NSmen below the age of 65, and focuses its benefits on death, accidental disabilities, and illness-related disabilities that are so severe that causes one to lose all capacity to work. However it should not be your sole, or main insurance policy as it possesses some shortcomings that would compromise one's long term financial security. Seek professional advice to work out how much insurance you need, and the type that is most suitable for your goals.









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