How Much Is My Life Worth? Here's How Much You Need To Be Covered For Life Insurance
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How Much Is My Life Worth? Here's How Much You Need To Be Covered For Life Insurance

Rachel Yeo
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I’m writing this article from home today, not because Seedly has a work-from-home policy, but because I am down with a cold.

With the COVID-19 virus circulating in Singapore recently, it is natural for people (myself included) to be a little paranoid.

So when I was down with a fever just last night, my first tendency (don’t laugh) was to search up on life insurance policies.

I’m the oldest child in my family, and both my parents have retired. Naturally, I would be worried about their well-being, if I were to die due to an accident or say, the coronavirus.

So without further ado, here’s a quick formula for calculating how much life insurance you need!

TL;DR: Here’s How Much You Need To Be Covered For Life Insurance

calculating how much coverage you need for life insurance

In General…

A good estimate would be to get life insurance coverage that is 10-15 times your annual income.

Let’s say if I earn $3,000 a month, my annual income would be $36,000. If I were to simply follow the 10-15x annual income rule, I would need an estimated coverage of ~$504,000 (assuming 14x income).

However, this may be an oversimplified way of calculating your coverage, as it fails to include existing assets, debts, and any other financial obligations from your dependents.

What Should I Consider When Determining My Life Insurance Coverage?

Instead of simply having a coverage that is 10-15x your annual income, you can gauge your coverage more accurately by finding your coverage gap. This can be calculated like this:

  • What  assets/resources do you have (after-tax income, any assets?)
  • Expenses + debt (This is your financial obligation)
  • Figure out how much your dependents need to get by. (Also part of your financial obligation)
  • Financial Obligation – Assets = Coverage Gap
  • Your coverage gap is what you need to get covered for life insurance.

To go about doing it, I will be using CPF’s Insurance Life Estimator tool, to help with my calculations. Here’s the breakdown I did:

Disclaimer: There are a few insurance estimator tools online that you can use. I found the ones provided by Life Insurance Association Singapore and CPF Board to be quite useful. Again, this is not a sponsored post! 🙂 

1. Calculating My Liabilities & Immediate Expenses

Source: CPF

As a recent graduate, I don’t have a lot debts to pay off, other than my university study loan. This amounts to about $30,000 in outstanding liabilities.

Next up, I will have to calculate the immediate expenses incurred if I were to die. This can be calculated with the following components:

Source: CPF

Gauging from how much it costs to hold a funeral in Singapore, I would probably get a Catholic funeral, which will cost ~$3,780-$8,098. Now I’m not much of a fancy person, so I will allocate ~$3,700 for my immediate funeral expenses.

I don’t have a house, nor do I have a will, so Estate Duty and Probate cost both amounts to $0. Assuming my annual income is $36,000/year, I will have to pay an annual income tax of $320.

Lastly, I assumed that there will be no other expenses and that there is no need for me to activate my emergency fund.

2. Calculating My Dependents’ Needs

Source: CPF

My family consist of my retired parents, and my brother, who is currently studying in a local polytechnic. I estimate their monthly expenses to be ~$2,000/month per person.

This adds up to a monthly living expenses of $6,000/month to meet their needs.

I would like to provide for them for 20 years. Assuming the policy returns is at 5% and Singapore’s inflation rate stays at around 2%, I will need a projected amount of $1,108,704.

As I’m not married, I do not have to consider future expenses for my child. So for those who have children, you have to keep in mind their projected expenses as well!

3. Looking At My Current Assets and Insurance

Source: CPF

For confidentiality issues, I will not be revealing the current amount of assets I have. So I will be basing this portion on assumption:

For a working adult who earns an average of $3,000/month, you will have $1,110 contributed to your CPF monthly (20% by yourself, 17% by employer).

Say you’ve been working full time for a year, you will have about ~$13,320  accumulated in your CPF. Assuming you follow Seedly’s money framework and save 20% of your salary, you would have saved an additional $7,200 in savings after a year.

I’ve decided to put existing insurance policies and investments as 0, as I have not started out on my investment journey as well.

How Much Do I Have To Be Covered For In Total?

Looking at my existing assets and liabilities:

 Assets Liabilities
Outstanding Liabilities 030,000
Immediate Expenses 03,700
Dependent's Needs 01,108,704
Existing Insurance and Assets $20,520 0
Total $20,520 $1,142,404
Coverage Gap (Liabilities - Assets)$1,121,884

I’ll need to fulfill a coverage gap of $1,121,884. Hence, when looking for a life insurance plan, I’d have to find one that gives me a sum assured of at least $1 million to tide my family through in the event that I passed on.

Of course, I’m not an insurance agent, and this calculation is based on my current life stage, and is highly biased towards my own personal needs and wants. As this is only an estimate, you should always do your own due diligence and plan accordingly!

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About Rachel Yeo
Breaking down complicated financial pieces into idiot-proof articles.
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