By Jermaine Koh
If you’ve only got a minute:
- Having adequate life insurance helps ensure your loved ones are protected when you’re no longer around.
- Use the 9x annual income rule or the tailored approach to calculate your death coverage needs.
- Term life insurance and whole life insurance are suitable products to provide for your death coverage needs.
Getting the right amount of death coverage is a crucial part of financial planning, especially when your family’s well-being and legacy are at stake.
However, studies indicated that many of us are under protected.
According to LIA’s 2022 Protection Gap Study:
- The national mortality protection gap is about S$373 billion.
- On average, each working Singaporean is underinsured by S$170,000.
Having adequate coverage can mean the difference between financial security and hardship for those you leave behind.
Why do you need death coverage?
Having death coverage is essential to protect your loved ones financially when you’re no longer there. It means your family can continue to cover everyday expenses and maintain their lifestyle without your income.
It also helps clear any outstanding debts, like mortgages or loans, so your family isn’t left with these burdens. On top of that, death coverage secures your children’s future by providing funds for education and other important needs.
If you support dependants, this protection ensures they remain financially stable. In short, having the right death coverage gives you peace of mind, knowing your family will be looked after no matter what.
Life Stage | Key needs to provide for upon death |
|---|---|
Young Working Adult | - Support elderly parent(s) - Funeral costs |
Supporting Aged Parents | - Debt repayment - Support elderly parent(s) - Funeral costs |
Starting a family | - Debt repayment - Children’s education - Support dependants - Funeral costs |
Pre-retirees | - Debt repayment - Support dependants - Funeral costs |
Source: DBS Bank
Your insurance plan should be tailored to your evolving responsibilities and the needs of your loved ones.
How much coverage do you need?
a. The 9x annual income rule
According to the Life Insurance Association Singapore (LIA) 2022 Protection Gap Study, the average mortality protection amount for working adults in Singapore is 9x their annual income. This figure is based on comprehensive national data that considers:
- Ongoing household expenses
- Outstanding debts (including mortgages)
- Children’s education costs
- Additional one-off expenses (e.g. funeral costs)
The study found that the average protection need per economically active (EA) adult is S$813,892, with an average annual income of S$90,855 - hence the 9x multiplier.
For example, if you earn S$70,000 a year, a S$630,000 payout would ensure your family has a decade’s worth of income replacement to help them maintain their lifestyle and keep up with the bills.
b. Tailored approach
While the 9x annual income rule offers a quick benchmark, you can also use a more tailored approach to determine how much life insurance you truly need.
This method considers your actual financial obligations and resources, ensuring your coverage matches your unique situation.
Step-by-step calculation:
1. Add up your family’s future financial needs:
- Living expenses (for the number of years you want to provide for)
- Outstanding debts (such as mortgage, car loans, or personal loans)
- Children’s education costs
- Any other major planned expenses
2. Subtract existing resources:
- Existing insurance coverage
- Current savings and investments
- CPF balances
3. Calculate the gap:
The sum you get is the amount of life insurance coverage you need.
Formula:
Required Death Coverage = (Annual Living Expenses × Years to Provide) + Outstanding Debts + Education Costs + Other Expenses – (Existing Insurance + Savings + Investments + CPF balances)
Example:
If your family needs S$60,000 a year for 10 years (S$600,000), and assuming you have a S$400,000 mortgage and wish to set aside S$150,000 for your child’s education, your total need is S$1.15mil. If you already have S$300,000 in savings and insurance, you’ll need S$850,000 in additional death coverage.
Suitable life insurance plans
- Term
Term life insurance offers straightforward, affordable protection for a set period (e.g. 5 to 40 years). It pays a lump sum if you pass away during the policy term, making it ideal for covering specific financial commitments like your mortgage or children’s education.
Term plans such as DBS TermProtect provides a lump sum payout should unforeseen events happen) and ManuProtect Term (II) protects yourself, your family or home if the unfortunate happens.
Both are flexible options that let you choose your coverage period and amount.
- Whole life
Whole life insurance provides lifelong coverage and includes a savings component that builds cash value over time. This type of policy can be suitable if you want to leave a legacy or ensure protection for your loved ones in the event of your passing.
For example, LifeReady Plus (II) provides coverage against death, terminal illness and total & permanent disability up to age 99. This policy allows you to enhance your protection with optional riders and offers features like a Health Advantage Benefit and the option to increase coverage up to 5x your basic sum insured until age 70 or 80.
If you’re seeking lifelong protection, cash value accumulation and the flexibility to adjust coverage as their needs evolve, this plan might work for you.
The reality behind sudden loss
It’s easy to put off thinking about death, but the risk is real and often unpredictable.
Having sufficient coverage provides a safety net so your family is not left financially exposed if the unexpected happens.
Being well protected now is far better than risking hardship later. The right amount of death coverage isn’t just a number, it’s your family’s financial shield.
With clear guidelines and sound financial goals in place, you can ensure your loved ones are protected no matter what life brings.
