Are you paying too much for life insurance?
Is $1,000,000 be a sufficient amount for your life insurance coverage to ensure your loved ones are comfortable in the event of your untimely demise?
It's actually about the minimum that most Singaporeans should have for their life insurance, especially if they have younger children and are taking care of their parents.
Why do you need life insurance?
Apart from pursuing your passions, most people work to provide for their families—to put food on the table and a roof over their heads. But what happens if you're no longer able to do that? Well, that's where life insurance comes in. While nothing can ease the pain of your family's loss, life insurance can help ensure that they maintain the same standard of living you were able to provide for them.
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How much life insurance is sufficient?
Firstly, you don't want any of your debts to burden your spouse or family. It's crucial to ensure that all your liabilities are covered by your life insurance. Consider the case of a client of mine who purchased a new house with an outstanding debt of just over $250,000 a couple of years ago. Unfortunately, due to an accident, she could no longer service the home loan. However, with a life insurance policy of just over $300,000, she managed to clear the home loan, preventing her family from losing the new home she had bought for them.
Next, you want to ensure that you can provide for your family's basic necessities and some luxuries. You'll likely need to support them for another 10 years. A basic calculation involves multiplying your annual salary by 10 for your life insurance coverage. For example, if you earn $60,000 a year, your life insurance coverage should be $600,000 to support your family over the next decade.
Alright let's get to the point
Now, let's revisit the question: Is $1,000,000 sufficient for life insurance? If you're an average Singaporean with an HDB loan and children, it's likely to provide only a barely comfortable amount. In the example above, the person would need life insurance coverage of $850,000 ($250,000 for the home loan and $600,000 to supplement the family's income over the next 10 years).