Life Insurance – How much to insure?

I read an article in the Business Times (27-28 October 2012) written by Graham Morrall, CEO Zurich Life Singapore, titled “Banking on life insurance”.

In the article it was mentioned that an average working adult would need almost 10 times his annual gross salary as life insurance coverage in order to be considered as adequate. Based on this recommendation, this average person would need $626,000 of insurance cover (earning an average monthly salary of $5,200). According to Life Insurance Association’s recent report, there is still a gap between ideal insurance cover amount and the actual average cover taken up by this individual, amounting to 3.7 times his annual income (a shortfall).

I fall into the category of under-insured in the past, looking at my total sum insured amount. But, this is just a simple rule of thumb, a ballpark figure that should be reviewed regularly and adjusted.

A person’s life circumstances changes as one gets older, eg. a person gets married, has a child, has other dependants to look after (e.g. parents), retires from work, etc. The insurance cover amount changes with these circumstances. One must look at his personal net worth (including CPF), projected annual income and expenditure, and his intention to leave behind a bequest for his dependants, to decide on the insurance cover amount.

As an illustration, if an individual has retired (with sufficient savings and CPF money), his child has started working and his spouse has her own streams of income, there is less need for a huge sum of insurance cover, other things being equal.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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