Financial Planning | Personal Finance | Article
The Chances of Using Your Insurance, Part 1: Term Insurance
by En Ci | 8 Jan 2019 | 4 mins read
Buying insurance is an emotional decision that’s largely driven by fear and paranoia – sometimes instilled into you by your friendly insurance agent.
“What if I’m the unlucky one?”
We often read stories about cancer patients in the news. Or hear of an unfortunate distant family member or acquaintance’s hospitalisation.
These stories float in our consciousness. So much so that it can even seem likely that it may happen to us in the distant future. However, we feel the pressure to make the decision to purchase insurance NOW – as premiums increase when we age.
So, what if we took the practical route and looked at cold hard statistics to inform our decision?
Statistically speaking, what are the chances of us actually using our insurance policies? Perhaps it would help us understand most important subscription decision of our lives – after Netflix, of course.
In this series, we’ll dive into some statistics to gauge the probability of using some commonly-promoted types of insurance.
Part 1: Term Life Insurance
What is it?
In layman terms, term life insurance is a type of insurance that offers a payout upon your passing. It is a straightforward policy that provides coverage for as long as you pay your premiums for a fixed period.
The coverage period offered by insurance companies is typically 10 or 20 years. Or up till 65 years of age.
How much to pay?
To calculate an annual amount, we’ve assumed that the policyholder is:
- A 25-year-old male
- A non-smoker
- Looking at a $200k payout
- Term of 39 years (to 65)
Using a comparison site, we’ve found the average premium amount of $183 – $392 per year for a basic term life insurance policy.
What triggers the payout?
Your death. Yep.
Because death is guaranteed (yay?), term life insurance may seem like a win (?). By now, we are sure you realise the money isn’t for you – it’s for your dependants.
So will you:
- Be married?
- If so, does your spouse depend on you?
- Have children?
- Or a cat? (Or twelve cats)?
But even if you have dependants:
Say you are 30 years old when you have a child. When you turn 55, they should be grown up and entering the workforce and no longer dependent on you (or at least one can hope).
So, in that scenario, how likely will you need term life insurance? i.e., what are my chances of dying in Singapore before 55?
To answer this question, we’ve crunched some numbers.
The answer is a whopping 3%.
The total term life insurance you’ll pay for 30 years (25-55) $5,490 – $11,730.
It is important to note that if you pass after the term life insurance period (in this case, after 65), your family will not receive a payout. Upon expiration of the term, there will be no cash returned.
So what then chances of death between 55-65? Another 3%. Making the risk between 25-65 a total of 6%. Total paid in this case for the total 39 years (25-65) would then be : $7,137 – $15,288.
For some, this amount is well worth paying to insure their loved ones against that 3-6% risk.
It’s up to you.
Throughout this series, we found that the chances of utilising some policies look surprisingly small. But before you rage-call your insurance agent and demand a policy cancelation, you have to ask yourself.
“What if I’m the unlucky one?”
For some, having the peace of mind is worth its price tag.
With these statistics we hope to provide you with additional information to a usually fear-driven decision.
Do Also Consider
Do you have:
- A family history of illnesses?
- A smoking habit?
- An existing health condition, such as high blood pressure?
These factors may increase your chances of early mortality, and the cost of your insurance policy.
The figures used in the article are the latest available to us. When we cross-reference datasets from various sources, the data period is standardised to the best of our ability to ensure consistency.