You can finally know how much insurance coverage you need

To the uninitiated, insurance can feel like delving into a confusing world full of jargons and numbers. With the dizzying array of insurance plans out there, it can be difficult to find out how much insurance coverage you need, and what insurance plans will be helpful for you to fulfil your financial goals. While calculating the amount of coverage and comparing between the range of available insurance plans with a limited budget is no easy feat, we aim to simplify insurance for you.

Types of insurance coverage to consider

Here are the different types of insurance coverage that you should consider:

• Death
• Total and permanent disability
• Critical illness
• Medical
• Personal accident coverage

As to which type of insurance coverage you should consider, that will depend on your life stage, financial needs and budget. The amount and type of insurance coverage that a single working adult will need may vary from a breadwinner of a family of four.

If you are looking at a form of income replacement in the unfortunate event that you are diagnosed with a critical illness and not able to work during your recovery period, you may want to consider a critical illness insurance plan. However, if you are looking at a payout that can cover for huge liabilities, like housing mortgage in the unfortunate event of your death, then you may want to consider a term life insurance plan or whole life insurance plan that can cover your liabilities in the event of early demise. As you may have already guessed, many people will have multiple overlapping financial needs like the ones listed above. It’ll be difficult to try and fulfil all of your financial needs with just one insurance plan.

Term life and critical illness insurance coverage: How much is enough?

As mentioned above, the amount of insurance coverage you will need will vary from individuals. You may be wondering, how much critical illness insurance coverage you need. You may refer to a general rule of thumb for death coverage and critical illness coverage provided by LIA¹

• Death coverage: 9 times one’s annual earnings
• Critical illness: 4 times one’s annual earnings

While there is a guideline, it depends on how much liabilities you are looking at covering so your spouse need not undertake the heavy responsibility of paying off liabilities.

Critical illness insurance payout can provide a form of income replacement so that you can focus on recovering without worrying on meeting your day-to-day needs. When you are figuring out the critical illness insurance coverage you need, you will also need to consider how your expenses may change due to the illness. A lump sum payout from a critical illness insurance plan can provide a safety net for you during that period.

Read more: New to insurance? Here’s what you need to know

How much should I be paying for insurance?

While there isn’t a fixed percentage or number that everyone should stick to, a rule of thumb recommended by the Life Insurance Association (LIA) is to spend at most 15% of your annual income for insurance. You may consider using this as a guideline to decide how much you should set aside for insurance. From there on, you can decide which insurance plans and how much coverage you can consider to fulfill your financial needs.

Ultimately, you’ll need to assess your protection gaps alongside the affordability of the coverage you need in order to make an informed decision on how much insurance coverage you should purchase.

When is a good time to buy insurance or review my insurance coverage?

The best time to get insurance is when you are young and healthy! This is because if you are not insured and have a health condition, it may complicate your attempts to get insurance. Hence, identifying and meeting your insurance needs early is a good way to financially protect yourself.

That said, as our life stages may change, so will our insurance needs. The insurance needs of a single working adult will most likely vary from a breadwinner of a family. Hence, a good time to review your insurance coverage is when life stage has changed, such as a change in job, marital status, etc.

With changing life stages, we may have dependents that we will need to care for. This means that we may need to look at their insurance needs and coverage as well. For example, when your marital status change, you may need to discuss with your spouse their insurance needs as well.

Do I still need insurance if I have no dependents?

While having no dependents may mean fewer financial concerns or obligations, you may want to look at having insurance to cover yourself.

For example, critical illness insurance plans can help cover your living expenses if you are unable to work and find a source of income due to critical illness.

Ultimately, knowing the amount of insurance coverage and types of insurance plans that you need isn’t necessarily rocket science! It’s all about understanding your needs, life stage and comfortable budget.

If you are looking for a critical illness plan, you may like to consider FWD Critical Illness Plus. FWD Critical Illness Plus provides a lump sum payout if you are diagnosed with early and intermediate stages of cancer, heart attack, stroke and 37 late-stage critical illnesses. From S$15.30/month, get a sum insured of S$50k for a 10-year renewable term.* If you would like to request for a personalised financial review, submit a request here.

*Male, aged 18, non-smoking