Many of us may wonder if there is a need to review our coverage every now and then.
Every individual goes through various stages in their lives – be it purchasing a home, getting married, or having a baby. As circumstances evolve, one’s need for protection changes, and it thus becomes more important to review one’s existing insurance coverage.
To put it simply, adequate insurance coverage helps you protect your nearest and dearest. In case something happens to you, your insurance payout will render some financial support when you are financially weak or unable to provide for them.
Most of the time, we actually do understand that we need to be covered. However, what is pulling us back from meeting our shortfall is the complexity of products in the market. The 2 most common types of coverage for life insurance are term and whole life plans. Those who are interested in having an investment aspect can look into investment-linked plans.
|Term Life Insurance||Whole Life Insurance||Investment-Linked Plan|
|What Is It||Life insurance that covers a specified period of years||Life insurance that covers the insured’s entire lifetime||Life insurance with an investment component|
|How Long to Pay||Premium payable throughout the chosen coverage period||Premium payable can be for a limited period, or throughout the coverage period chosen||Premium payable throughout the coverage period chosen
*May consist of feature to temporarily stop premium payment
|Any Cash Value||No cash value||Provides Cash Value (Guaranteed and non-guaranteed returns)||Cash value is not guaranteed|
|Why do people usually opt for this||Affordable protection coverage with low premium||Prefers a limited premium payment term instead of paying premium for whole life||Would like a combination of protection coverage, and prefers to take on higher risk for a potentially higher return|
Adequate insurance coverage allows us to have peace of mind that our family is well protected. Here are a couple of recommended ways of determining whether your insurance coverage is adequate:
According to the Life Insurance Association Singapore (LIA), one of the easiest ways to assess if your insurance coverage is adequate is by following the income rule of thumb.
Life Insurance Coverage = 10x current annual income1
Critical Illness Coverage = 5x current annual income2
According to this formula, if your current annual income is SGD 20,000, then ideally, your life insurance coverage should be SGD200,000 and critical illness coverage should be SGD100,000.
However, as everyone’s lifestyles are different, it may not necessarily mean that higher earnings point to higher spending or liabilities. Neither does lower earning mean lower spending or liabilities. For a more personalised calculation method, the needs-based method will allow you to understand your coverage needed better.
This approach provides you with a more holistic view of your current financial standing. Not only will it help you in evaluating the amount of life insurance coverage you need; it will also allow you to better manage your personal cashflow.
You will need to be aware of your current expenses, liabilities and any future obligations. Examples of such expenses include daily necessity spending, mortgage payment, and even any outstanding loans you have.
Your next step is to determine what resources you currently have to meet the above needs. Some examples are current life insurance policies, savings, investment etc.
After you are aware of the above, you can better analyse the amount of coverage that you require.
Some people have life insurance, but amongst them, there are some who are not aware if they are insufficiently covered. This happens primarily because they do not review their coverage as their needs evolve.
Here’s how to ensure that your insurance coverage remains adequate and satisfactory:
Every individual needs to be aware of their current insurance coverage, and review it especially if there is a change in the overall family structure. For example, if you have a newborn child, you need to determine if your current plans can adequately cover this life change. Otherwise, it would be better for you to increase your coverage to ensure your growing family remains protected.
Our insurance requirements depend on a number of things, such as our lifestyles, annual income, and even the inflation rate. This is why it becomes important to undertake a yearly assessment of our insurance coverage to understand if our coverage is still optimal.
There are a variety of insurance products available to meet different types of needs. There is no ONE best product in the insurance market that suits everyone. You need to carefully consider the differences in features of the product and carefully select the one that best suits your needs. Do also consider which risks you are more prone to. This will help you ensure that your insurance coverage is adequate to protect you from a financial setback, and doesn’t stop you from achieving your financial goals.
There are many insurance products around the market, be it term insurance or whole life insurance. Furthermore, there are many insurers offering similar products. Understanding what is out there and what you need may thus be complicated.
Being in this industry with a wider exposure, an experienced financial consultant will be able to better explain to you the product features as well as how individual products differ. He or she will also be able to assess your current financial standings and provide you with recommendations pertaining to your needs and shortfall.
Matching the above analysis, your financial consultant will then be able to recommend products which best suit your needs. You will also be able to count on him or her to carry out regular reviews to ensure that you and your family are always familiar with your coverage.
Jack Ma once said, “Buying life insurance cannot change your life; instead it prevents your lifestyle from being changed.”
Accidents happen when we least expect them to – and if your insurance coverage isn’t adequate to help you bounce back from a calamity, it might lead to a huge hit on your savings and investments, as well as any future financial plans. This is why it’s important to constantly reevaluate your insurance needs.
With a bevy of insurance-related information in the market, it can be difficult to ascertain whether your coverage needs are being met adequately. If you’re eager to reassess your insurance coverage, consider getting in touch with our financial consultants at SG Alliance.
Retirement to me means these three things all at once: • no longer having to work for a living •