You will be able to subtract your existing cover and assets from your gross need to find the gap you actually have.
Once you have a gross need figure, the obvious next step seems to be asking for a policy of the same size. That usually means paying for protection you already have. Most households hold some cover before they buy anything: a policy taken out years ago, life cover through an employer, a flat whose loan is paid with CPF, and money in the bank. Before you buy, work out how much of the need these sources already meet. You can rely on each one only so far, and each one ends at some point. For every source you need two figures: how much it pays and when it stops.
Jun Hao is the example here. In Lesson 2.1 his gross need came to S$1,200,000 (an example figure), and Ryan has suggested a policy for exactly that sum. Jun Hao already owns a whole life policy, gets cover through his job, has a flat paid with CPF and has some savings. All four come off the S$1,200,000 before he decides what to buy.
The Dependants' Protection Scheme (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 the premiums are paid from CPF savings. DPS pays a lump sum on death, terminal illness or total permanent disability, up to a set age. The CPF Board sets the sum assured, the age cover ends and the premiums, and it can change any of them.
Don't guess your DPS cover. Log in to the CPF website and check whether you are covered, for how much, and the date the cover ends. If you opted out years ago or your premiums lapsed, you may have none. For most families DPS is modest compared with their need, so subtract it once and move on.
The Home Protection Scheme (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, HPS pays off the outstanding housing loan up to that member's insured sum, based on their share of cover. The cover shrinks as the loan shrinks. HPS does not cover private residential properties, such as executive condominiums (ECs) or privatised Housing and Urban Development Company (HUDC) flats. Owners of those properties may have bought private mortgage cover instead, or may have no cover.
When a flat has co-owners, each owner chooses a share of cover, and the total share of cover for the household should add up to at least 100% of the loan. If one co-owner dies, HPS settles the outstanding loan only up to the insured sum based on the share of cover that owner chose. The surviving co-owner still owes whatever that payout does not clear.
Jun Hao co-owns his flat with Mei, and the HDB loan is S$280,000. Each of them chose 50% HPS cover. If Jun Hao died, HPS would pay about S$140,000, which is his share. Mei would still owe her S$140,000 share and would have to pay it from one income. HPS cuts the housing part of Jun Hao's need from S$280,000 to S$140,000. Check your own HPS share on the CPF website and count only the insured share that is yours.
Many employers provide group term life cover. It costs you nothing and it is useful, but it belongs to the job. If you resign, are retrenched or become too ill to work, it usually ends on your last day of work or soon after. That is often when a family is most exposed. Some group policies let you convert to a personal policy when you leave, but the window is usually short and the price is sometimes higher. Check the conversion terms in your benefits handbook. Jun Hao has S$100,000 of group term life from his employer.
Count group cover with caution. Work out your gap twice, once with group cover and once without. Make sure the figure without it is one you could live with.
Any policy you own that pays on death counts in full. That includes term, whole life, the death benefit of an ILP, and a mortgage policy. Use the death benefit you can be sure of. For whole life, that is the guaranteed sum assured, not the projected total with bonuses. If a policy has an accelerated critical illness rider, a critical illness claim made first reduces the death benefit. Lesson 5.3, "Accelerated or standalone: does a claim shrink your life cover", explains why. Jun Hao's whole life policy pays S$100,000 on death and has an accelerated CI rider. For now he counts the full S$100,000.
Savings and investments reduce the gap, but count only money your family could actually reach within 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 your nominees, outside your will. Lesson 8.2, "CPF and insurance nominations", in the course "The Singapore personal finance system, end to end", covers how this works. Your Ordinary Account may be mostly spent on the flat. Special and MediSave balances would be paid out, but your family cannot use them as spare cash today.
Jun Hao counts S$60,000 of savings and investments his family could reach. He leaves his CPF balances out of the sum and treats them as a margin. That is a personal choice, and you may decide differently.
He starts from the gross need and subtracts each source he can rely on:
S$1,200,000 - S$140,000 (HPS) - S$60,000 (savings and investments) - S$100,000 (whole life) = S$900,000
With group cover included, the gap is S$900,000 - S$100,000 = S$800,000. That figure holds only while he stays in that job. Neither figure includes DPS yet. Jun Hao has to check his DPS payout on the CPF website and subtract it from both S$900,000 and S$800,000.
The cover to buy is the part of the gap that nothing else covers, less DPS. Group cover is a bonus you hope not to need. For Jun Hao, that means buying S$900,000 less DPS and treating the S$100,000 from work as a bonus. This is well short of the S$1,200,000 policy Ryan suggested.
When each source stops matters as much as how much it pays. Group cover stops when the job ends. DPS and HPS stop at set ages, or when the loan is repaid. Savings change every month. A gap you work out today is only true for as long as those sources last. Lesson 2.3 uses these end dates to decide how long your cover should run.
For the activity, list every source of cover or money your family could use, with the amount and the date it stops. Go through them in order: DPS, your HPS share, any group cover (checked against your benefits handbook), personal policies at the death benefit you're sure of, and savings your family could reach. Fill in the date column as carefully as the amount column, then work out your gap once with group cover and once without.
Write down every source of cover or money your family could use, with the amount and the date it would stop.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).