When buying insurance, many people often go for traditional whole life plans instead of term plans. The former appears attractive with the monies at maturity being more compared to the latter. But term plans are in fact better for most cases.

1. Term plans cost much less than traditional whole life insurance. For a male (non-smoker) aged 35, a traditional whole life plan with $100,000 sum assured (for death or total & permanent disability) will cost about $2,186 p.a. whereas a whole life term plan (coverage till age 90) will cost only $863 p.a. That is a difference of $1,323!
   
   
2. By restricting yourself to traditional whole life plans, you are likely to be inadequately covered due to budget constraint. By going the term way, there is a stronger likelihood of being fully covered.
   
   
3. You can keep protection costs even lower as term plans allow you to limit the actual term coverage to an earlier age like 60. Most of us have much reduced protection needs by age 60 as our mortgage will be fully paid up and our dependants no longer need our financial support. Using the same male example above, the premium for a term plan till age 60 is $332 p.a.
   
   
4. You can also terminate term plans at any time when there is no longer a need for certain protection, without worrying about the potential loss of savings.
   
   
5. For whole life plans, insurers deduct a portion of the premiums for the cost of protection and invest the rest into the life insurance fund for you. From the profits gained from the life insurance fund, policy holders will get at least 90%, while the rest will go to the shareholders. When investments do not do so well, like in the years 2000-2002, policy holders are likely to have their bonuses cut. Therefore it makes better money sense to buy term and invest the rest on your own and profiting all the gains for yourself.
   
   
6. When you invest on your own, instead of through an insurance plan, you will generally achieve better returns over the long term. You can also:
   
   
   1. create a proper asset allocation strategy based on your risk profile,
      
   2. stop and start investing at any time (to cope with events like retrenchment or unexpected high expenses),
      
   3. change the amount to be invested (when income levels change),
      
   4. change investment managers (when you feel your existing manager is not performing to your expectations).

Therefore, it is wiser to separate the two needs (in most cases) - protection and savings needs. We buy insurance to protect ourselves and our families. And we invest to build our future funds and for the children's education. Now isn't that being money smart?

Read more about why we advocate term insurance in our articles published by the media.

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