How Much Do I Need to Tide My Loved Ones Through?

You want to ensure that your loved ones continue being able to live a similar standard of living even if you are no longer around. This is especially crucial if they were dependent on your income. To do this, you need to identify relevant costs areas, and plug any coverage gaps that you may have.

Here are some cost areas that you need to provide adequate coverage for.

# 1 Final costs

In the situation you pass on, your dependents will need to take care of your final costs. If you have diligently kept an emergency fund, that could go towards paying for this expense. According to the Life Insurance Association (LIA), average funeral costs is estimated to be close to $10,000[1].

# 2 Unpaid Services

Unpaid services refer mainly to the household chores and caregiving duties, to children, other adults, or elderly parents, who you provide. In your absence, your family may have to hire a domestic or healthcare worker to do them.

The LIA estimates this cost to be close to $286,000 per working adult¹.

# 3 Loans

Your loans include personal loans, car loans, housing loans, credit card debt and any other debts or loans that your dependents will need to pay off, either by taking over or using your assets.

The LIA has calculated the average outstanding loan for working adults to be an estimated $208,000¹.

# 4 Children

If you have young children, they have ongoing needs, including university tuition fees, enrichment classes, food, clothing, and entertainment among others.

Typically, you should plan for your children to become financially independent only after they turn 20. The LIA estimates that each working adult will need to cater an estimated $79,000 for their children. This is based on average households in Singapore, which means that if you have more children, you should expect greater coverage needs¹.

# 5 Elderly parents

If you have parents or parents-in-law that are dependent on your income on a daily basis, you need to ensure that your coverage is sufficient to provide for them. You need to take into consideration their life expectancy and standard of living as well.

LIA estimates that average working adults require $62,000 in coverage for elderly dependents¹.

# 6 Surviving adults

The needs of the surviving adults is broken down into two cost components – rent and future household expenses.

Rents need to be considered for both elderly parents and spouses. LIA estimates the rent liabilities of each working adult to be $54,000¹. Of course, this could be more or less depending on your unique situation.

The second cost component is the future household expenses, allowing for inflation. This excludes rent, children and elderly dependents, as they have been separately calculated in earlier cost components.

LIA estimates that working adults will have to provide for household expenses of $855,000¹.

After adding up all the expenses you would have to cater for in the event of an unforeseen circumstance, you will arrive at your total protection needs. According to LIA, this typically amounts to about 9.0X your annual income¹.

However, this isn’t necessarily what you need to provide for in insurance coverage. You should deduct this figure with any assets that you currently have, including your CPF savings, bank deposits, as well as other investment assets that you have such as stocks, bonds, properties and even jewellery.

The final figure you are left is how much your loved ones will need in the event you are no longer around to provide for them.

In most cases, you would already have some basic level of insurance coverage. What you need to pay attention to is your insurance coverage gap – which is the additional amount that your loved ones will need in the event you are no longer around as compared to how much assets and insurance coverage you currently have.

On average, people in Singapore have a mortality coverage gap of close to 2.1X of their annual income and a critical illness coverage gap of 3.1X of their annual income¹.

For reference, your mortality coverage gap represents the financial gap to cover the needs of your dependents over a defined period in the event you are no longer around. This is the difference between your assets, including savings, CPF balances and existing insurance coverage, and your dependents future expenses, including living expenses and debt left behind.

Your critical illness coverage gap represents the financial gap to cover the needs of you and your dependents for a five-year period, which is assumed as the recovery period. This is the difference between your existing insurance policies (but not savings, as it is assumed to be for your retirement should you recover), and your expenses, including living expenses and ongoing debt payments.

If you are still unsure of how much more you need to set aside for your loved ones, you can use this handy protection gap calculator by the LIA.

By knowing how much your loved ones would need to tide them through in your absence, and covering any gaps in coverage you may have, you will be able to live life confidently.

Of course, your protection needs are constantly changing as you transit into a different life stage, including when you turn 18, get married, have a child, adopt a child or lose your spouse. This makes it crucial to review your coverage on a regular basis.

AIA Guaranteed Protect Plus (II) helps you cover all your bases with an all-in-one plan meeting your changing protection needs, in the event of death, total permanent disability or critical illness, and your savings needs, to leave to your loved ones. You also have the flexibility to increase your coverage level when you enter a new stage in life. This can be exercised once and can be done without additional underwriting.

At the end of the day, having adequate coverage gives you peace of mind and frees you to focus on the most important things in your life.

By embarking on AIA Vitality, you also enjoy free additional coverage of up to 25% of your boosted coverage amount. By improving your lifestyle, and AIA Vitality status, you also get additional perks and discounts.

Contact your trusted AIA financial consultant to find out more about the AIA Guaranteed Protect Plus (II) today.