Determining How Much Coverage You Need

It doesn’t matter how old you are or how much income you earn every month – EVERYONE needs insurance. Unfortunately, too many Singaporeans don’t have enough insurance coverage for one simple reason – they don’t know how much insurance they need in the first place!

Being underinsured, while better than being uninsured, is still a risky situation that can hurt you financially in the event of an unfortunate accident.

Young Singaporeans in their 20s and 30s are particularly vulnerable to being underinsured – which is dangerous because these are the years when you should be buying enough insurance to protect your future wealth!


How Much Insurance Does the Average Single Singaporean Need?

To illustrate how much insurance every young Singaporean needs, we’ll look at an average Singaporean’s journey as he meets with an experienced financial planner to get right about of insurance coverage.

Say hello to Mark, a young 25-year old Singaporean professional earning $3,000 a month.

Part 1: You’ll Need to Determine Your Liabilities

Mark chose a financial planner to help him make sense of his financial situation so that he could make better choices to build and protect his wealth.

If you’re not sure what a financial planner is, it’s a professional who prepares financial plans (simple right?). A financial planner will walk you through both your expenses and liabilities, so you can realise what your “real” life necessities are.

In Mark’s case, the first thing his financial advisor asked him was “what are your liabilities?”

When a financial advisor asks you this question, he wants to know how much you pay every month in terms of bills and any loans you’re currently making repayments on.

Mark presents his financial planner with his list of liabilities:

Liability Amount Paid Each Month Necessity (Is it a life essential?)
Handphone Bill $100 Yes
Gym Membership $100 No
Utilities Bill $200 Yes
Car Loan ($40,000 Outstanding) $600 No
Personal Loan (Laptop Purchase $2,000 Outstanding) $200 Yes

After understanding Mark’s monthly liabilities, the financial planner asks another very important question – what happens if you become completely disabled in a car accident?

Considering this possibility, Mark has no real answer to this question – and that’s when his financial planner gives him the bad news.

Judging from his debt liabilities, Mark’s upfront lump sum payable would be $42,000 (car loan + personal loan). That’s because in the event of an accident, there’s no way he would be able to make payments on his obligations.

His necessities on the other hand would amount to $300 (handphone + utilities) per month – payments that would still need to be made even if Mark had no way of paying them!

Part 2: You’ll Need to Determine Your Expected Living Expenses If Something Happens…

Needless to say, Mark was a bit surprised by the “accident” scenario his financial planner created. But it did bring up a good point – “what happens if you experience an accident that leaves you permanently disabled?”

As Mark’s financial adviser points out to him – his monthly expenses would change drastically. He would need medication, regular medical consultations and a caretaker to watch over him. Not to mention there would be huge medical bills to pay off as well (since we all know hospitals won’t treat your injuries out of charity)!

Mark’s financial planner provides him a list of possible monthly living expenses IF an accident did occur:

  • Food ($450)
  • Medication ($100)
  • Maid/Nurse ($1,000)
  • Medical Consultation ($200)
  • Transportation ($100)
  • *Initial Lump Sum for Medical Treatment after accident ($50,000)

The sad part about this scenario is that this is actually considered a very frugal estimation – in reality, your monthly expenses and initial lump sum for treatment can be MUCH HIGHER.

Part 3: You’ll Need to Tally Up The Figures

After looking over the revised expenses in the event of an accident that leaves Mark permanently disabled (keep in mind he created a very frugal estimate),  the financial planner evaluates the TOTAL lump sum and monthly expenses that would needed to be paid:

Lump Sum Payment Monthly Expenses
Car Loan $40,000 Total Liabilities $300 (Handphone + Utilities)
Personal Loan $2,000 Food $450
Initial Lump Sum (Treatment) $50,000 Medication $100
Maid/Nurse $1,000
    Medical Consultation $200
    Transportation $100
Total Lump Payment $92,000 Total Monthly Expenses $2,150

After tallying up these numbers for Mark, his financial planner asks him to think about the possibility of living another 10 to 20 years.

Based on the estimate above for Mark’s total monthly expenses, the total amount he would need over the span of 10 to 20 years would be (with 3% annual inflation):

  Liabilities Total Expenses Grand Total Annual Inflation (3%)
10 Years $92,000 $2,150 X 12 (months) X 10 (years) = $258,000 $350,000 $472,000
20 Years $92,000 $2,150 X 12 (months) x 20 (years) = $516,000 $608,000 $820,000

After looking at the numbers his financial advisor calculated, it becomes immediately apparent that he needs $472,000 to $820,000 in his bank account just to survive another 10 to 20 years!

That’s when Mark realises the hard truth – insurance is the ONLY way to get the immediate payout to cover current AND future expenses!

Even if you have $100,000 in savings and $50,000 in investments, after paying your immediate liabilities ($92,000), you’d only have $58,000 to last you the next 20 years – that’s only 26 months!


Conclusion – You Need at Least $500,000 Insurance Coverage to Last You 10 Years!

So how much insurance do you need if you’re a single Singaporean? Roughly $500,000 in coverage is the answer – and that’s if you’re A) living on a very frugal $2,000+ a month, and B) if you’re expected to survive another 10+ years.

That insurance coverage number is in line with what the amount of insurance recommended by the Life Insurance Association (LIA) Singapore for the average working adult in an average household – which is $490,000.

So before you decide to choose the cheapest policy available or worse, skip out on insurance entirely because you think putting all of your money into savings or investments is better – just remember that all it only takes ONE accident to wipe out your savings.

Don’t take the risk of assuming nothing will ever happen to you – purchase an insurance policy so that the financial risk is transferred to your insurer!