How important is life insurance?

[SINGAPORE] Picture yourself as the primary breadwinner in a household of three. You take pride in meeting your family’s needs, ensuring stability and comfort in their daily lives. But then, life takes an unexpected turn—you contract COVID-19. Suddenly, you’re unable to work. Remote duties? Off the table too. So, what happens next?

Luckily, foresight pays off. You had already secured a life insurance policy that includes coverage for critical illness. That decision now offers a crucial lifeline. But beyond moments of crisis like this, how else can life insurance serve you in the long run?

Understanding the Basics: Term vs. Whole Life Insurance

Life insurance generally falls into two categories: term and whole life. Term insurance is typically more affordable and offers coverage for a specified period—say 20 or 30 years. Whole life insurance, by contrast, provides lifelong protection, as long as premiums are paid.

Here’s the key difference: term insurance offers pure protection with no payout if the policyholder outlives the term, while whole life policies accumulate cash value over time. This built-in savings component can later be accessed or borrowed against, though doing so may reduce the eventual death benefit and carry tax implications.

More Than Money: Life Insurance as Peace of Mind

Life insurance isn't merely a financial product—it also has a powerful psychological effect. Knowing that your loved ones are financially safeguarded can ease mental stress during difficult periods, allowing you to concentrate on healing and recovery. That peace of mind is, in itself, invaluable.

Protection Against the Unexpected

No one wants to think about the worst-case scenario—but being prepared is essential. When a family's main income source is lost, the financial toll can be devastating. While survivors may find ways to sustain themselves, having a life insurance plan can significantly ease that transition.

Beyond replacing lost income, life insurance can also cover funeral costs, outstanding debts, and other immediate financial obligations—offering a buffer in a time of emotional and financial strain.

A Safety Net in Health Crises

Whether you’re single or have a family, having an emergency fund is non-negotiable in today’s unpredictable world. Life insurance complements this fund by providing a financial cushion in case of major health issues.

Contrary to the belief that buying life insurance is like planning for your funeral, it’s actually a tool for survival. Many policies now include critical illness coverage, offering a lump sum payout upon diagnosis of serious conditions. This allows policyholders to prioritize treatment and recovery over bills and financial concerns.

Financial Relief After Retirement

Life insurance, particularly whole life policies, can also serve as a financial resource in retirement. The cash value built over time can offer an additional stream of income or support discretionary spending—provided it’s used wisely.

Furthermore, life insurance often comes with tax advantages. Death benefits are generally distributed tax-free, ensuring your beneficiaries receive the full value of your policy. That’s a compelling reason to see it not just as protection, but as a strategic financial tool.