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How Much Insurance Coverage Do You Really Need in Singapore?

It doesn’t matter how old you are or how much income you earn every month — everyone needs insurance. Most people already know that, but how much insurance coverage do you need? Have you ever wondered if your insurance coverage is enough to protect you and your loved ones in times of need?

The harsh reality is that far too many Singaporeans lack adequate insurance coverage because they don’t realise how much insurance they require in the first place. Many find themselves facing the harsh reality of insufficient coverage when unexpected events occur. But worry not! In this blog post, we’ll shed light on the importance of insurance coverage and provide you with a comprehensive guide to determining the appropriate amount of coverage needed. So, let’s dive in and uncover the truth behind insurance coverage in Singapore.

Understanding Insurance Coverage

Insurance coverage is more than just a number—it’s your shield against life’s uncertainties. To start our journey, let’s demystify insurance coverage. Imagine it as a safety net, a financial parachute that cushions you and your loved ones when unexpected challenges strike. Think of it as your superhero cape, protecting you from financial distress. So, what exactly is insurance coverage? It’s the sum assured or sum insured in a life insurance policy. It represents the amount you receive in case of death, disability, or critical illness. Understanding it is vital for safeguarding your financial well-being.

Understanding insurance coverage

Getting insurance is your responsibility to YOUR family and your loved ones. You may hate it, but it is YOUR responsibility.

Jeremiah Say

Assessing Your Insurance Needs 

Let’s dive deeper into assessing your insurance needs. Think of this as your roadmap to finding the right coverage. First, evaluate your liabilities and obligations. Take stock of your monthly bills—utilities, phone bills, mortgage or rent payments. Differentiate between essential and non-essential expenses. 

Next, anticipate potential life events and risks. Picture yourself in different scenarios—a disability, critical illness, or even death (touch wood, choi!). These events can have a significant financial impact. For example, a disability may result in additional medical expenses or the need for a caretaker. Consider the financial implications of these situations and prepare accordingly.

In estimating future expenses, it’s essential to project living costs, including inflation. Imagine your future self, living in a world where prices have soared. Factoring in inflation ensures that your coverage keeps up with the changing times. Let’s break it down with an example. If your current monthly expenses amount to $2,000, accounting for a 3% annual inflation rate, your expenses would increase to $2,280 after five years. 

Determining Adequate Coverage

Let’s take a peek at a typical Singaporean’s journey as he meets with an expert financial adviser to determine how much insurance coverage he requires. His journey mirrors that of many young individuals seeking to protect their financial future.

Meet Joseph, a 25-year-old Singaporean professional who earns $3,000 a month.

Determine liability and expenses

We begin by listing Joseph’s liabilities and monthly expenses. Think of it as creating a financial inventory—a detailed breakdown of his financial obligations. Bills, loans, and essential living costs all find their place in this list. Now, let’s calculate the lump sum payments required to settle Joseph’’s outstanding debts, such as his car loan or personal loans. It’s like untangling a web of financial commitments, allowing Joseph to start fresh. 

Here’s a breakdown of Joseph’s monthly expenses. These are conservative figures as we assume that Joseph is still living with his parents and does not need to pay mortgage or rent.

CategoryAmount ($)
Insurance Premiums100
Breakdown of Monthly Expenses
DebtOutstanding Amount ($)Lump Sum Payment Needed ($)
Personal Loan5,0005,000
Credit Card Debt2,0002,000
Total Outstanding7,0007,000
Breakdown of liabitilies

Determine expected living expenses (if an unfortunate incident happens)

As we move forward, let’s consider the potential increase in Joseph’s monthly expenses in case of disability or illness. This step involves projecting additional costs, such as medical expenses and caretaker fees. Think of it as building a safety net within a safety net, ensuring that Joseph is adequately protected against any unforeseen circumstances.

His financial planner typically starts off by asking, “What happens if you become completely disabled in a car accident?” This is a rhetorical question, there’s no actual answer to this but it helps kickstart the calculations. 

In the event of an accident, Joseph would be unable to meet his financial responsibilities. Thus, he has to make an upfront lump sum payment of $7,000 based on his debt responsibilities. 

Furthermore, Joseph’s monthly expenses would skyrocket. He would require medication, regular medical consultations, and the supervision of a caregiver. Not to mention the massive medical expenditures that would be incurred (because we all know that hospitals would not treat your injuries for free).

His financial advisor will then provide him a sample breakdown of monthly expenses IF an accident did occur:

  • Food ($300)
  • Prescription medication ($100)
  • Caretaker ($1,000)
  • Consultation with a doctor ($200)
  • ($100) transportation
  • *The initial lump sum for medical treatment following the accident ($60,000).

Looks like a hefty price to pay? It is actually a lot worse. The estimations are conservative – the monthly expenses and medical treatment are expected to be much higher. 

Calculate how much insurance coverage is required.

The financial planner will then assess the entire lump payment and monthly expenses that would be required in the event of an accident that could leave Joseph permanently incapacitated.

Lump Sum PaymentsMonthly Expenses
Credit card debt: $2,000Total liabilities: $200 utilities
Personal loan: $5,000Food: $300
Initial lump sum (treatment): $50,000Medication: $100
Caretaker: $1,000
Doctor’s consultation: $200
Transportation: $100
Total lump payment: $7,000Total monthly expenses: $1,900
Total lump sum and monthly expenses

Next, we account for long-term expenses and inflation. Joseph, like many others, dreams of retirement and financial security. By factoring in long-term expenses and inflation, we paint a comprehensive picture of Joseph’s coverage needs. Assuming Joseph lives for another 10 to 20 years and factoring in annual inflation, this is the total amount he will need. 

LifeLiabilitiesMonthly ExpensesGrand TotalAnnual Inflation (3%)
10 years$7,000$1,900$1,900 x 12 (mths) x 10 yrs + $7,000  = $235,000$305,500
20 years$7,000$1,900$1,900 x 12 (mths) x 20 yrs +$7,000  = $463,000$601,900

After doing the math, it is clear that Joseph requires $305,500 to $601,900 in his bank account to survive another 10 to 20 years! This sum will deplete his savings and investments. If Joseph had just started working and did not have any savings, he would barely be able to pay off his outstanding liabilities. It is really lucky that he paid off his studies in full, else the amount calculated would be a lot higher. 

To cover his current and future needs, he must obtain insurance with a sufficient sum insured to allow him to live for a further 10 to 20 years.

You need at least $500,000 insurance coverage

So, as a single Singaporean, how much insurance do you require? The answer is actually not $305,500 as we calculated earlier. Joseph is living on modest monthly expenses and he is fortunate that he does not have many loans. The correct answer is actually a ballpark figure of $500,000 in coverage (or total assured) considering that you are living on a modest monthly expense and projected to live another 10+ years. It will be a lot more if it is 20+ years instead.

That insurance coverage quantity corresponds to the Life Insurance Association (LIA) Singapore’s recommendation for the average working adult in an average household, which is $490,000.

Always keep in mind that it just takes one accident to deplete your money. Don’t just go with the cheapest policy or forgo insurance altogether. It is critical to safeguard your assets before investing. If you have not started on your insurance journey yet, I urge you to hurry up as it is always better to be safe than sorry. 

Assess your insurance needs based on the insights gained from this guide. Reach out to insurance providers, armed with the knowledge and understanding to make the best choice for yourself and your loved ones. Remember, insurance coverage is not just a number—it’s the key to financial security and peace of mind.

Read more: How to Choose the Best Insurance Policy in Singapore

Eugene Chai

Eugene Chai is a seasoned financial expert with over 4 years of experience. His work has graced the pages of prominent Singapore Investment sites. He has also been featured on Channel News Asia - Money Talks. With a passion for simplifying complex financial concepts, he empowers individuals to make informed decisions about their money. Whether it's investment strategies, personal finance, or market trends, Eugene's insights are a beacon of clarity in the world of finance.

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