You will be able to explain when you need term life insurance and how to work out the amount.
Before you meet anyone who sells insurance, write two short lists. On the first, put every person whose rent, food, fees or monthly allowance comes partly out of your salary. On the second, put every loan you would leave behind that someone else would then have to pay. These two lists decide whether you need life cover at all, and they also give you what you need to work out how much.
Most people first hear about life insurance in their twenties, and usually from someone with a reason to sell it: a friend newly working as an adviser, a relative, or a bank officer at the counter while you open an account. The suggestion tends to come with a round sum attached, half a million or a million, and with a product that also promises to return money to you later. The question to settle first is whether anyone would actually need your income if you died.
Term life insurance pays a lump sum to the people you have named if you die within a fixed period of cover, known as the term. The term can run until you reach a stated age, for example 65, or for a set number of years. Many term policies also pay if you are diagnosed with a terminal illness. Some offer total and permanent disability cover, often as an optional add-on. The policy wording shows exactly what is included, so read it.
Term life has no savings element. When the term ends and you are still alive, the cover stops and nothing is paid back to you. As a result, the same amount of cover costs far less as term life than as a policy that mixes protection with savings, because your premium pays for protection only.
You need life cover when your death would leave someone without enough money. Most cases come down to two situations: someone relies on your income, or someone would be left to repay what you owe.
Dependants include a spouse who earns less than you, young children, or parents you give money to each month. Their rent, school fees or allowance comes from your salary, so those payments would end when your salary did.
The most common debt case in Singapore is a home loan taken in joint names. Your death does not reduce what is owed to the bank, so your co-owner would carry on with the repayments on a single income.
If you are single, nobody lives on your pay and you share no debts with anyone, you may need little or no life cover at present. Marriage, a baby or buying a flat can change that quickly, and each one is a reason to go back over the question. Lesson 9.3 goes through the life events, such as marriage, a child or a flat, that should send you back to review your cover.
The right amount depends on which income and which debts you want covered, and for how many years. A round number picked in a sales conversation is a guess. Build your own figure this way:
Estimate the yearly sum your dependants would need from you. Multiply it by the number of years they would need it, for instance until your youngest finishes school. Add the debts you would want paid off. Take away the cover that is already in place.
Kumar (an invented example, figures made up for it) is 35 and married, with a daughter aged three. His wife has a job, but the household depends on S$36,000 a year from his pay. He wants that income replaced until his daughter turns 22, which is 19 years from now, so S$36,000 x 19 = S$684,000. He also wants his S$250,000 share of the home loan settled. S$684,000 plus S$250,000 = S$934,000 in total.
Treat S$934,000 as a first estimate. It leaves out inflation, and allowing for inflation would raise the figure. It also leaves out any income his wife could add, and counting that would lower it. An adviser can refine the number, and so can the detail in Insurance Decoded. Even before that, the figure rests on what his family would actually need, which a round number does not.
List your existing cover before you calculate any gap. Most people turn out to hold more than they expected.
Many employers give group term life cover as a benefit, and the amount appears on your HR portal or in the benefits handbook. It normally stops when you leave that employer, so your family should not rely on it alone. Calculate your gap with it and without it.
The Dependants' Protection Scheme (DPS) is term life cover for CPF members. Many members are covered automatically once they start work and CPF contributions begin, unless they choose to opt out. It pays a lump sum on death, terminal illness or total permanent disability, up to a set age. You can see the sum assured, the age limit and the premiums on cpf.gov.sg, and check there whether you are covered.
If you bought an HDB flat using CPF, also look up the Home Protection Scheme on cpf.gov.sg, since it may already cover the loan. Any savings and investments you would leave behind count as existing cover too.
Kumar's employer gives him S$100,000 of group cover, and he has S$50,000 of savings his family would receive. He looks up his DPS cover on the CPF website. S$934,000 minus S$100,000 minus S$50,000 = S$784,000, and his gap is that amount less his DPS payout. Because he may change jobs, he also works out the figure without group cover: S$934,000 minus S$50,000 = S$884,000, again less the DPS payout. He would also find out whether the Home Protection Scheme covers the flat loan. If it does, the S$250,000 comes off his gap.
These sums do not tell Kumar which policy to choose. They tell him how much protection his family needs. Settle that figure for your own household before you speak to anyone selling a policy.
You do not need to finish the sum today. Start with the first piece: think through who relies on your income, how long they would need it, and what you owe that someone else would have to pay.
List who depends on your income, for how many years, and any debts they would be left with. Your cover amount starts from this list.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).