How much financial protection do you need?
Working out how much financial protection you need is an important first step in your wealth planning journey, because you need to make sure you cover all your bases for any curveballs that life may throw at you.
Economically active individuals in Singapore have a whopping total SGD893 billion mortality and critical illness protection gap1 - that's a huge lack of coverage for 2 extremely important life needs. These needs include your future household expenditure, rent/mortgage commitments, loans, as well as needs of your children and any elderly members of your family, among others.
How do you determine just how much financial protection you'll need for yourself and your loved ones? It doesn't have to be complicated. You can begin the process by answering these 3 questions:
- Is there any debt you'd like to pay off if you were unable to work and earn a salary? If yes, how much is that debt worth?
- What are the total monthly living expenses, including food, education, transport, healthcare and any other needs you have to meet?
- If you pass away or were unable to work, how long do you want to ensure your family's day-to-day living expenses are covered without them needing to dip into their savings or liquidate their investments?
Once you've considered these questions, plug your answers into the formula below and work out the amount of protection you need.
Total debt to pay off + (monthly living expenses x months required) = The amount of financial protection you'll need
This final figure will give you a rough idea of the amount of life protection cover you should have in place to secure your family's future and ensure there aren't any significant gaps that might leave you or them scrambling for financial support if something unexpected does happen. To get a specific amount of exactly how much financial protection you will need, review your current coverage plans for any shortfalls and seek professional advice if needed.
Now that you've figured out your personal financial protection needs, it's a good time to think about how much coverage is ideal. The Life Insurance Association of Singapore recommends you have mortality protection coverage amounting to about 10x of your annual income, as well as critical illness protection that's about 3.9x of your yearly salary1. These are good yardsticks to follow when you're deciding on coverage plans to take up.
This is where we come in. To get started, fill in a Risk Profile Questionnaire that will help you understand your investment risk appetite better. Our dedicated Relationship Managers will then review your current plans and policies, define your current and future protection needs, and help you understand the differences between various insurance products, so you'll be able to see which products are suitable for you. Leave us your contact details and we'll be in touch with you shortly.
1 Life Insurance Association Singapore, "Life insurance industry boosting efforts to bridge Singapore's S$893 billion mortality and critical illness protection gap", April 2018.
This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or securities nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The specific investment objectives, personal situation and particular needs of any person have not been taken in consideration. You should therefore not rely on it as investment advice. You may wish to seek advice from a financial consultant before making a commitment to purchase the product. In the event that you choose not to seek advice from a financial consultant, you should consider whether the product in question is suitable for you.
Buying life insurance policy is a long-term commitment. An early termination of the policy incurs high cost and the surrender value payable may be less than the total premiums paid.
All insurance plans and riders are underwritten by HSBC Life (Singapore) Pte. Ltd. (Reg. No.199903512M), 38 Beach Road, #03-11, South Beach Tower, Singapore 189767 and distributed by HSBC Bank (Singapore) Limited ("HSBC"). It is not an obligation of, a deposit in, or guaranteed by HSBC.