25 March 2019

By Kevin Press

Deciding what to buy – term, permanent or universal life insurance – doesn’t have to be an either/or choice. You may need more than one type.

If you’ve spent any time researching life insurance, you know that there is a long-standing debate about the benefits of term versus permanent insurance. It’s often presented as an either-or decision, as if one is right and the other wrong, depending on your situation. Don’t be misled.

Term and permanent aren't the only kinds of life insurance. Universal life is another. Unlike health insurance, which generally speaking pays out when you get sick, life insurance pays a cash benefit to your beneficiary or beneficiaries when you die. A lot of Malaysians have group life insurance provided to them as an employee benefit. Many don’t, and many others choose to top up their group plans with individually purchased life insurance.

Here's how they work:

Term life insurance is a relatively inexpensive form of life insurance that provides protection over a pre-defined period of time (it gets more expensive as you get older). Typically, consumers purchase this temporary insurance to protect their dependents during times when they have significant financial obligations (like a mortgage, for example). Let’s say you owe RM400,000 on your mortgage. Holding half-a-million dollars’ worth of term life insurance for a period of time would prevent your family from experiencing real financial hardship if you die.

Permanent life insurance provides guaranteed lifetime protection. Younger Malaysians will find it more expensive than term. But your premiums remain constant, so at a certain point in your life it will be cheaper to pay for your permanent life insurance than it would be to buy additional term insurance. (Some permanent life insurance products are adjustable, which is to say that their premiums change over time.) A participating life insurance policy — which is a kind of permanent life insurance — can provide policyholder dividends. You can use the dividends to buy more coverage, take a cash payment or decrease your annual premium, or you can save the money with your insurer and earn interest. Over the long term, you’re probably better off owning permanent than you are continually renewing term insurance.

Universal life insurance is more complex. In most cases, it provides clients with lifetime (or at least long-term) protection while at the same time making possible tax-deferred savings. Some universal life insurance products feature premium payments that remain constant over time, some require payments that rise over time and others combine both. Payments made over and above the cost of the insurance can be invested and your savings will be held on a tax-deferred basis.

In other words, the question was never term or permanent. It was: How much term and how much permanent? Check out our wide product range to help you understand further.