You will be able to subtract existing cover and assets from your gross need to find the real gap.
Jun Hao's gross need from lesson 2.1 came to S$1,200,000. Ryan's next suggestion was a policy for the full amount. But Jun Hao already has a whole life policy, cover from work, a CPF-paid flat and some savings, and his family wouldn't be starting from zero. Before anyone prices a new policy, the real question is how much of the S$1,200,000 is already covered.
This lesson goes through each source in turn, with the catch that comes with each one.
The Dependants' Protection Scheme, or DPS, is a term life scheme run by the CPF Board. Many CPF members are covered automatically once they start contributing, unless they opt out, and premiums are paid from CPF savings. It pays a lump sum on death, terminal illness or total permanent disability, up to a set age.
The sum assured, the age the cover ends and the premiums are set by the CPF Board and can change. Don't guess them. Log in to the CPF website and check whether you are covered and for how much, and write down the date your cover ends. If you opted out years ago, or your premiums lapsed, you may not be covered at all.
DPS is a modest amount next to most families' needs, so treat it as a deduction you count once and move on from.
The Home Protection Scheme, or HPS, is mortgage-reducing insurance from the CPF Board for HDB flat owners who pay their housing loan with CPF savings. If an insured member dies, becomes terminally ill or suffers total permanent disability, it pays off their insured share of the outstanding HDB loan. The cover shrinks as the loan does.
Two details decide how much it helps. First, it applies to HDB loans paid with CPF. A bank loan for an HDB flat or a private property is outside HPS, and those owners may have bought private mortgage cover instead, or nothing. Second, co-owners each insure a share of the loan, and the shares add up to the whole. If you die, HPS clears your share. Your co-owner still owes theirs.
Jun Hao and Mei each chose 50% cover on their S$280,000 loan, as an example. If Jun Hao died, HPS would pay about S$140,000, and Mei would still owe her S$140,000 share from one income. So HPS reduces his loan need from S$280,000 to S$140,000, but not to zero. Check your own share of cover on the CPF website.
Jun Hao's employer gives him S$100,000 of group term life. It's useful, and it costs him nothing. But it belongs to the job. If he resigns, is retrenched or becomes too ill to keep working, it usually ends on his last day or soon after, and that's often when a family is most exposed. Some group policies let you convert to a personal policy when you leave, usually within a short window and sometimes at a higher price, so check your benefits handbook.
Count group cover with caution. A sensible habit is to work the gap out twice, once with group cover and once without, and to make sure the "without" figure is one you could live with.
Any policy you own that pays on death counts in full: term, whole life, an ILP's death benefit, a mortgage policy. Use the death benefit you'd be sure of, which for whole life means the guaranteed sum assured rather than the projected total with bonuses.
Jun Hao's whole life policy pays S$100,000 on death. One caution: it has an accelerated critical illness rider, so if he claimed for a critical illness first, the death benefit would drop. Lesson 5.3, Accelerated or standalone: does a claim shrink your life cover, explains why. For now he counts the S$100,000.
Money your family could use reduces the gap, but only money they could really get at, and in a reasonable time.
A joint bank account with your partner usually passes to them directly. Investments and accounts in your sole name generally go through your estate, which can take months. CPF savings go to the people you nominated, outside your will, as lesson 8.2 of The Singapore personal finance system, end to end, CPF and insurance nominations, explains. But your Ordinary Account may be largely spent on the flat, and the Special and MediSave balances aren't spare cash for your family today, even though they would be paid out.
Jun Hao counts S$60,000 of savings and investments. He leaves his CPF balances out of the sum and treats them as a margin, which is a choice you may make differently.
All figures are examples.
Gross need from lesson 2.1: S$1,200,000 Less HPS on his share of the loan: S$140,000 Less savings and investments the family could reach: S$60,000 Less his whole life policy: S$100,000
That leaves S$900,000. If he counts the group cover as well, the gap is S$800,000, but only while he stays in that job. From both figures he still has to subtract his DPS payout once he has checked it on the CPF website.
So the answer to "how much cover should I buy" has moved a long way from the first round number. It is the S$900,000 he can't rely on anything else for, less DPS, with the S$100,000 of group cover as a bonus he hopes not to need.
The activity asks for every source of cover or money your family could use, the amount and the date it stops. The date column matters as much as the amount. Group cover stops with the job. DPS and HPS stop at set ages or when the loan is repaid. Savings change every month. A gap worked out today is only true for as long as those sources last, which is why lesson 2.3 turns to how long your cover should run.
List every existing source of cover or money your family could use, with the amount and when it would stop.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).