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Period of premium payment
30 Jan 2016 (203 views)

Under a life insurance policy, the period of premium payment can be:

a) For the entire duration of the policy or
b) For a limited period


Whole life policy
For example, a whole life policy may require the premium to be paid for the whole of life (or may stop at an advanced age of 90 years) or can be limited to a shorter period, e.g. 20 years or until age 65.


A policy where the premium is payable over the entire duration is cheaper, compared to a policy providing the same cover, where the premium ceases after a limited period.

For example, a whole life policy insuring $300,000 taken by a 30 year old may require an annual premium of $6,000 payable over a lifetime, or an annual premium of $10,000 payable over 20 years.

Endowment policy
It is now quite common for an insurance company to issue an endowment policy for 10 or 15 years with the premium payable for only 5 years. The policy benefit is payable at the end of the term (or on earlier death) and the premium is payable for 5 years only.


The agent will tell the policyholder that the policy is for 5 years and the buyer may be misled into thinking that the investment can be redeemed at the end of 5 years. The 5 years refer to the period of premium payment. The buyer has to wait until the end of the term, i.e. 10 or 15 years, to get the policy benefits. If the buyer terminate the policy earlier, the cash value is usually much lower than the premiums paid.

 

Long term care (Eldershield)
The long term care policy promoted by the government, called Eldershield, requires premium to be paid until age 65. The policy will continue to cover the policyholder for the whole of life). The premium can be paid using Medisave savings.

Some private insurances have offered additional coverage for long term care, on top of basic Eldershield. They may require premiums to be payable until age 65 (i.e. to follow the structure of the basic plan) or may allow the premium to be paid for a lifetime. 

If the buyer opts for lifetime payment, the premium is lower, but has to be paid beyond age 65.



Period of premium payment
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Under a life insurance policy, the period of premium payment can be:

a) For the entire duration of the policy or
b) For a limited period


Whole life policy
For example, a whole life policy may require the premium to be paid for the whole of life (or may stop at an advanced age of 90 years) or can be limited to a shorter period, e.g. 20 years or until age 65.


A policy where the premium is payable over the entire duration is cheaper, compared to a policy providing the same cover, where the premium ceases after a limited period.

For example, a whole life policy insuring $300,000 taken by a 30 year old may require an annual premium of $6,000 payable over a lifetime, or an annual premium of $10,000 payable over 20 years.

Endowment policy
It is now quite common for an insurance company to issue an endowment policy for 10 or 15 years with the premium payable for only 5 years. The policy benefit is payable at the end of the term (or on earlier death) and the premium is payable for 5 years only.


The agent will tell the policyholder that the policy is for 5 years and the buyer may be misled into thinking that the investment can be redeemed at the end of 5 years. The 5 years refer to the period of premium payment. The buyer has to wait until the end of the term, i.e. 10 or 15 years, to get the policy benefits. If the buyer terminate the policy earlier, the cash value is usually much lower than the premiums paid.

 

Long term care (Eldershield)
The long term care policy promoted by the government, called Eldershield, requires premium to be paid until age 65. The policy will continue to cover the policyholder for the whole of life). The premium can be paid using Medisave savings.

Some private insurances have offered additional coverage for long term care, on top of basic Eldershield. They may require premiums to be payable until age 65 (i.e. to follow the structure of the basic plan) or may allow the premium to be paid for a lifetime. 

If the buyer opts for lifetime payment, the premium is lower, but has to be paid beyond age 65.