How Much Life Insurance Coverage Is Enough Coverage?


In October 2003, the Singapore Government launches a national finance education program called MoneySENSE. This article is for those who missed it for various reasons. It will tell you a gist of what the program was about, while concentrating more on life insurance coverage.

It is important for families to set up family budgets. Most of us do not realize it but just having savings in the bank is not enough. Hence, every family should ideally set up a family budget. An easy way to set it up is through the following steps:

  • Create a list of all your monthly income
  • Create a list of what you plan to spend (targeted expenses) and a list of your actual monthly expenses (what you spend). If your expenses are not incurred monthly, prorate them on a monthly basis.
  • Set aside a fixed amount of savings every month. As a guide, you should have savings equivalent to six months of your salary as emergency funds at any point in time.
  • Develop a budget and follow it in a disciplined manner.

These are the four tools that lead to a more or less accurate family budget. The next important thing is financial planning. A lot of people feel that financial planning is only for the rich as they have enough finance to plan it. Unfortunately, this is merely a myth. If you have money, however little it is, you must have a financial plan.

The areas to be considered while developing and implementing a financial plan are:

  • Cash Flow Management
  • Risk Management
  • Investment Planning
  • Retirement Planning
  • Tax Planning
  • Estate Planning

After our finances have been planned and we have begun to implement them, our next priority should always be life insurance coverage. Everyone is usually aware of life insurance but what people are not aware of is which plan to take up from a sea of different insurance plans, as well as how much life insurance coverage is enough coverage.

First, let us understand life insurance. Life insurance is what gives you and your family protection against death, permanent disability and critical illness.

Now, let us review the main types of insurance plans available in the market:


With these plans, you get lifelong protection as long as premiums are paid. Most of such plans build cash values that can be withdrawn in the form of policy loan in case of an emergency. “Riders” to cover for illness and total permanent disability can be added to basic plans.


It is aimed at building up your savings over a fixed policy term. The policy pays the sum assured and any bonuses you have built up at the end of the policy term, or when you die or become totally or permanently disabled during the policy term. Depending on your needs, an endowment policy can serve as an all-purpose savings plan, a children’s education savings plan or a retirement plan


With this, you get protection for a fixed period. It pays the sum assured only if you die or become totally or permanently disabled during that period. Term insurance has no surrender value when the policy ends or terminates prematurely. However, the cost of this type of coverage is usually lower than that of a whole life plan. Term insurance usually comes in terms of five to forty years and is renewable when each term ends.


Such plans invest in different investment instruments while providing you with optional insurance coverage that you can vary according to your needs.

Now that we know the kind of plans available, let us see how to decide the amount of coverage that we need. To how the amount of coverage we need to consider a few things:

  • If you have any debt other than your mortgage and if you do, you are spending more than you earn. More debt means that you need more life insurance to pay it off.
  • You need to consider your monthly expenditure and not through guessing. If, god forbid, you die, then you need to look at it in terms of how much money your family would need on a monthly basis, hence, an accurate idea of it is important. You may get it from your bank statements.
  • If you are very strict about your savings, you don’t need a high amount of coverage.
  • Long term saving goals also need to be considered, including money needed after retirement and children’s education. If you have enough savings, you need lesser coverage.

These are a few simple things one needs to keep in mind in order to know how much coverage one should get. Other factors include annual income and annual expenditure at large, number of years to provide financially for dependants, if you are a part of a single income family or a double income family, if you are a single adult with elderly parents to support or a married couple with no other responsibility.

The above factors may be understood better by the following example:

Let us assume that there is a single income family with two children.



Annual income


Annual expenditure


No. of years to provide for financially dependants

22 years

Total annual expenses over the next 22 years


Funds to set aside for children’s education





Thus, from the above table we may conclude that the estimated life insurance protection for the above family is equivalent to about 11 times the annual income.

As you can see, the promise of a universal life insurance solution is still a distant dream and Singaporeans must factor in their financial goals and lifestyle requirements and proactively seek out other options to fortify their life insurance coverage.  

What do you think?