Why Everyone Should Get a $1 Million Term Cover Before 40 Years Old?

Many people conveniently sidestepped the question “Do I have sufficient protection for my family and loved ones?” simply because nobody likes to talk or even think about death.  However, have you ever wondered:

• With higher mortgage debt over time due to more property ownerships, what happens when your beneficiary is unable to sell for a good price or be left with little sales proceeds when forced to sell in a depressed market?  Not to mention selling also means “killing the goose” which no longer accords them passive income for living expenses.
• What if you change your mind one day and decide to buy a high protection, only to find that the policy comes with exclusions due to poorer health?  To give an example, it was reported that almost half or 40% of adult population here has non-alcoholic fatty liver disease (NAFLD) as opposed to 27% globally, which has implication for underwriting.

What makes the whole situation more ironic is that there’s actually a very simple solution to the above predicament – everyone should buy a $1 million term cover before 40 years old.

Let us give you the six reasons why this is the best solution that many fail to see:

1. Highest Cover for Liabilities You’re Certain to Bear

Why $1 million?  We all know a term cover is the cheapest protection which pays for only mortality charges.  Considering the inflation rate of property prices in Singapore, $1 million may be the lowest you could settle for in terms of having sufficient coverage for the mortgage loan.  This is especially so if you are looking at assuming two mortgages at some point by your 40s.

Not only will this help to take care of mortgage liabilities, the insurer pays out the initial $150,000 quickly to the named beneficiaries (way before your executor can execute, and that’s provided you have a will done else it takes even longer) which helps take care of all immediate living expenses while waiting for your estate.  With pulling of other savings, your loved ones need not be forced to sell quickly against their wishes.

2. Get It Before It’s Too Late

Why 40 years old?  Going by anecdotal evidence, that seems to be the age when the body starts to go downhill.

With aging parents and an expanded family with more kids, the last thing you want is to be denied a comprehensive coverage with no exclusions, when you finally realized that you do need a much bigger protection later in life than what you thought when you were in your 20s or 30s.  Speaking about what are some things you would tell your younger self, that’s definitely one item in the list.

What’s out of sight is out of mind.  When you are much younger, you may not see the need to be sacrificing a small part of your hard-earned salary for this need that’s so far down the road.

3. Paying a Little, but Getting a Lot More (A Contrarian View)

With the food that we feed ourselves with, it’s no surprise cancer can hit any one of us at any age.  The cancer incidence rate in Singapore is gnawing, so there’s no need for us to reproduce those depressing statistics.  Even at the personal level, chances are you will know of at least one or two deaths due to cancer, with some not even hitting 40 years of age.

You may not believe in paying extra to get a high cover via a term plan, but you should at least agree with us that everyone needs a good Early Critical Illness (ECI) cover as when it comes to treatments to battle for your life, that’s priceless.  You would also want an early CI plan upon diagnosis, not CI plans in the past which necessitates that the tumour be spreading before any payout.  That’s the least you should do to be responsible to your loved ones – so as not to further burden them with exorbitant medical bills as you seek treatment to recover from the setback, which also means in all likelihood you will lose your income.  For this reason, the Basic Financial Planning Guide 2023 published by MAS and industry players recommends for one to get protection of 4x one’s annual income for critical illness, along with 9x one’s annual income for death and TPD (total permanent disability).

What’s has ECI got to do with a $1 million term life you may wonder?  Because you ought to get this ECI early when you’re still in the pink of health, you may not realize that the cost of adding on that $1 million cover to a ECI cover may not be as prohibitive as you think.  Why not kill two birds with one stone?

To illustrate, our GE partner has provided the premiums to pay for someone at the age of 35, both female and male, non-smoker and still in the pink of health, for the three scenarios of (1) 30-year $1 million term plan (death/TPD), (2) $1 million term plan with $200,000 ECI, and a standalone $200,000 ECI (without term plan) as follows:

We will go with $200,000 of ECI cover as recommended based on 4x of annual income, and set that as the base case of what is mandatory to purchase.

You can see that for a female, the standalone ECI costs $1,224 per annum for the next 30 years.  Whereas if she buys that as a rider with $1 million term cover, she pays only $970 for the same ECI protection.  That’s a difference of $254 per annum.  With that savings, she only needs to add on a further $1,589.90 – $1,224 = $366 per annum to get the $1 million term cover.  That’s about the price of skipping one good meal a month at $30!  In exchange for on average boosting one’s total protection by 3x (assuming the average life cover is $350,000).  Likewise, that additional cost for adding on $1 million term for a male is just $1,666.60 – $1,177.20 ~ $490 per annum, or around $40 a month.  Just $10 more.

In summary, you are paying just a little bit more every year, but boost your coverage by estimated 3x as much.  A no-brainer.  The issue is most people start with the life cover which becomes very costly when you try to include ECI as a rider to the plan.  Doing that puts the cart before the horse and most people end up with less than $100,000 ECI cover, when that can be more important than how much you can leave behind for your loved ones.

4. The Highest Cover When You Need It the Most

There are two key reasons why people resist buying term plan which provides the highest protection: Not enough money, and not willing to pay “sunk costs” that’s every cent down the drain in a term plan with no cash value.  I have addressed the former in the preceding point where you need to get the priorities right, now let’s talk about the issue of sunk costs.

Everyone likes the idea of buying whole life policy where after paying premiums for a period usually around 25 to 30 years, you effectively get covered for life or until age 100 years old.  As such, there’s an end to premium payment and hence you “get something back”.  This is so because the projected growth in the policy’s cash value would be able to cover the rising mortality charges as you age.

First, get the perspective right.  You are still paying sunk costs for mortality charges in a whole life policy none the less.  The difference is that you don’t see it as the sunk costs get embedded into the policy’s cash value (or deducted from) which grows over time due to the bonuses added.  You stop paying premiums after 30 years only because the accumulated returns from investments over the years are projected to be so big as to cover all the mortality charges as you age.  However, because a big portion of the premiums you pay go into investments, you don’t get the same high cover unlike if you are just paying for pure protection.  And the result of that is most people become underinsured for the period in life when they actually need the highest cover – age 35 to 65 years old, when they likely have young kids and aging parents.

Therein lies the perennial debate about “buying term and investing the difference”.  There’s no easy answer as investing on your own can also lead to costly mistakes where you lose the principal sum.  Perhaps one rule of thumb here is set aside a certain budget for insurance premiums (the Guide recommends not more than 15% of one’s income) every month, and split that into 50:50 for life vs. term cover.

5. You Can Downgrade Later, But Not the Reverse

In some ways, this is similar to reason 2 above.  If you ask for a higher cover later in life, you have to go through underwriting.  However, if you ask to reduce the cover, no underwriting is required, which is obvious.

So, is there a catch?  Is it worth paying premiums for 10 to 20 years in advance just so you can lock down the low premium rate and you can have this choice of a much higher coverage later in life?  That depends on how you see it.  First, the premiums paid is for the real value of a $1 million payout in an unfortunate event before the age of 65 for example.  You can also envisage that as leaving behind a $1 million fully-paid property to your loved ones, without actually buying one.  Second, even if you can get underwritten with no exclusions at age 50, at the mid-point of a 30-year term plan, you would be paying a much higher premium.  In other words, paying a lower premium for a 30-year term plan at age 35 might turn out to be still cheaper than paying a higher premium at age 50 for the same cover that ends at age 65, even though you are paying 15 less years.  See the illustration from GE below:

Whether you buy the $1 million term plan with $200,000 ECI at age 45 or age 50, the total premiums paid would still cost you more than had you bought the plan at age 35!  There are at least four reasons why you should always buy the term plan early:

• You pay less overall costs
• You may less in premium each year (eases your cashflow)
• You get high cover from a younger age instead of later
• Most importantly, you avoided being refused comprehensive cover without any exclusions later in life when you most needed the high cover

6. Term Cover Can Be Converted Later

All good term plans should come with a “convertible” feature which would allow you to convert wholly or partially the coverage to a life plan before the end of the term, without the need for   This gives you that optionality should you change your mind later and decide that you still need some protection even after 65 (in our example).

We are not insurance agents or financial advisor, though we do partner with some (see actionable steps below).

This blog seeks to improve financial literacy amongst Singaporeans and provide the “best-in-class” knowledge for financial planning to help achieve the best retirement plan.  We also hope to become the conduit to channel funds from the well-to-do in this country to the poor and weak as part of our socialmission.

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