Group Term Vs Personal Term? How Much Coverage to Get?

See also: the 4 types of term policies you should know.

Aside from the different types of term policies available, term can be further classified as group term policies and personal term policies.

A group term policy, as the name suggests, is a term policy that is signed up as a group between employees of an organisation and an insurer. Personal term policies, on the other hand, are between an individual and an insurer. The main difference lies in the ownership of the policy: for personal term policies, the individual who applies for the insurance contract is the policyowner. For group term policies, the organisation is the policyowner.

Limitations of a Group Term Policy

As policyowner, the organisation can opt to alter the policy, including terminating it, and the insured may not be able to do anything about it depending on the specific terms of the policy. MINDEF Group Insurance (also known as SAF Group Term) is a popular group term policy in Singapore, and I’ve confirmed with the insurer (Singlife with Aviva) that the terms and conditions are fixed at the point of purchase. This may or not may not be the case for other group term policies.

Another effect of not being policyowner is the inability to nominate beneficiaries under the Insurance Nomination law. In the event of a claim, Singlife is able to pay up to $150,000 to the immediate next-of-kin, or a proper claimant. The balance will be decided by a Court; if a will is written, a lawyer has to be engaged for a Court of Probate which may take up to 6 months. Without a will, a lawyer has to be engaged for a Letter of Administration, which make take up to 3 years to resolve.

For corporate term policies, you may wish to check whether or not the policy is portable, which is whether its coverage can continue when you leave the company. Corporate benefits are usually meant to make it less attractive for employees to switch companies, so group term coverage, particularly those provided free of charge, may not be something you can bring with you should you change employers.

Do compare premiums of these policies with personal term policies. The premium difference may not be large enough to justify some of the limitations that group term policies bring. Nonetheless, they may be a good, low-cost boost to your own personal plans.

Things to look out for when buying term

Personally, these are what I’d do when it comes to purchasing a term policy:

• compare premium rates across providers
• read through terms and conditions to be clear on claim definitions
• decide on a coverage amount
• decide on a coverage tenure

It’s pretty safe to start comparing policies with the lowest premium rate. Some may have the belief that more expensive policies are more “reliable” in paying out, but all insurers in Singapore have a legal obligation to pay claims as defined in the contract, and being more expensive does not guarantee an easier claims process.

Instead, it depends highly on the terms and conditions as well as the definitions of claims. While things like death are pretty standard in definitions, and the definitions of critical illnesses are standardised, other things like early critical illnesses can differ a bit in terms and conditions. Do compare between a few plans to see if you are okay with the difference in definitions vis-a-vis the premium difference.

Coverage amount is a little trickier to decide on, and it depends largely on your risk tolerance. There are mathematical ways to calculate this amount, such as multiplying the years of income replacement required with the annual amount needed; parents of a newborn child may want to purchase $500,000 of coverage to provide for 25 years of $20,000 income replacement, for instance. Of course, having a higher coverage amount obviously makes for a better safety net. Given the relatively low cost of term policies, getting upwards of $500,000 to $1 million death coverage isn’t that expensive.

If you have disability income insurance, your critical illness coverage can be lower, and I’d suggest around $300,000 minimum, again depending on your risk appetite. After disability income insurance takes care of income replacement needs, a critical illness payout helps to alleviate increased costs of living and improve quality of life after a critical illness. It allows for doing things like hiring domestic help and renovating one’s place for wheelchair access, so obviously a larger amount helps out here.

The final piece of the puzzle would be the tenure of the term policy. Term is meant to cover one temporarily, so if you are opting for whole of life coverage or to very advanced ages like 70 or 80, your cost will be very prohibitive. Instead, aim to cover your financially productive years, so a young working adult who just started working may consider about 20 to 30 years depending on budget. You can tweak the number of years to change the premium, and in my opinion, the coverage amount should take priority over the number of years when it comes to a limited budget.

Do consult a financial adviser for personal financial advice. You may also wish to try MoneyOwl.

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