A reader shares his wisdom:
Before we discuss about how much insurance to get, we must first understand what insurance is all about. Insurance is
(1) a risk management tool
(2) to transfer the financial risk of catastrophic events to the insurer
(3) in exchange for a small sum of premiums.
In light of the above definition, I usually recommend people to stay away from whole life insurance and go for term-life instead. Insurance, after all, is an excellent risk management tool but a poor investment vehicle, IMHO.
How much life insurance should one get?
There's many factors to consider. One of that will be your financial commitments. Say, you are a fresh graduate and no dependants at all. Technically, you only need sufficient life insurance to cover for TPD and CI.
The required sum assured will still be high (up to S$500,000) because a young disabled man in his 20s will need lots of $$$ for care and support until he passes on. Take note that expected longevity in SG is about 82 for male and 85 for females.
An additional point to note is that when buying term-life insurance, I would suggest my friends to cap the term up to retirement age (currently 62 years old).
The reason is simple: Insurance loses it cost effectiveness after a person is in his 60s and 70s. The cost of life insurance will rise exponentially because the probability of dying also rises exponentially.
This is one of the main reasons why the Dependent Protection Scheme (DPS) caps at age 60. Getting life insurance beyond that age is no longer value for money.
When you are in your 60s, life insurance should no longer be needed because your financial commitments should be at a minimum. This means no debt, no dependants and no major financial expenditures.
People in this life-stage should be focusing on retirement adequacy.
Btw disclaimer ah, I am just talking out loud to myself in the above posts. Please visit a professional planner (not insurance agent) if you want sound and constructive $$$ advice.
I bought my insurances when I was 26 years old.
I paid $100/month for $1M term life and $250K major CI. You can use this a base for comparison.
For fresh graduate earning a market rate of $3K/month. $50/month can "smelly-smelly" get them $500K insurance coverage if they go for term-life insurance.
Friends, not everything in life needs insurance one. Ponder and chew on this point.
Get adequate insurance where it matters. Don't overpay for insurance and we do not need insurance for everything under the sun. Words of wisdom.
Note: Author would like to remain unnamed.
1. How much term life insurance should fresh grad have?
2. In my 40s, married with kids? What would I do?
3. Achieving level 1 financial security for Singaporeans.