Am I spending too much on insurance? I am currently 24 years old with an income of 2,200 (inc CPF), I am not sure if the policies I own are 'too much'? I am easily persuaded by my agents? - Seedly
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Anonymous

Asked on 14 Feb 2020

Am I spending too much on insurance? I am currently 24 years old with an income of 2,200 (inc CPF), I am not sure if the policies I own are 'too much'? I am easily persuaded by my agents?

Currently, I have the following :

PruPersonal Accident: $14.88/mth

PruShield Premier: $322.20/ yr via CPF

PruExtra: $45.76/mth

PruLady Plan C: $1316.46/year

PruTriple Protect: $1093.28/year

AIA Secure Term Plus: $397.67/year

AIA Premier Disability Cover: $343.5/year

These exclude another 2 endowment policies I have.

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Looking at these numbers I actually find it a little excessive.

Some essentials from what you have that I think you can keep: Prupersonal accident, PruShield Premier & Pru Extra. Hospitalization + Personal Accident plan is quite essential IMHO. Then for PruLady Plan C, usually Lady's plans are more expensive. Should compare and review if you actually need it right now.

Need to review your family medical history and whether you are the sole breadwinner at home. I do find PruTriple Protect good in the sense that it allows 3 times of claim but whether it is essential and necessary at this stage is another matter.

Speak to a qualified FA, and by speaking to them you don't have to take out another new plan with them. Preferably someone you can trust - any friends or family members perhaps? And endowment plan at age 24 - I think it's too early. Unless your pay is higher and have some spare cash else I'd rather you build on emergency funds.

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Davin
Davin
Level 7. Grand Master
Answered on 24 Feb 2020

It looks like u r paying more than 10% of yr salary to insurance and that haven't include yr endowment plan.

Rule of thumb is not more than 10%.

U might want to talk to some good FA to restructure yr coverage.

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Hi there,

First off, great that you have purchased numerous insurance plans.

Sometimes, health concerns will be more important than the cost which is why it's important to get it when you are healthy.

As to whether the amount is "too much" I would suggest you sit down with a consultant and do a complete review of what you have currently. You have not given the coverage size which is important to make an assessment.

There are factors in play which will be important to decide whether or not you should decrease:

  1. What is the likelihood that your income is to increase?

  2. Have you done proper budgeting for your current cashflow?

  3. Do you have any other financial goals in the next 5-10 year timeframe?

  4. If yes to 3, have you considered setting aside an automatic system to hit them?

  5. Do you find that your monthly premiums are impeding your ability to save?

  6. For your two undisclosed endowment policies, what are the time frames and liquidity like? Did you factor it into your life plan?

While protection is fantastic, 18% of your cash flow after CPF is excessive in my professional assessment. Largely because you should have other financial commitments that will come given your current age.

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Hi Anon,

The guideline for how much you should spend on insurance should be 10-15% of your annual income, based on what you have without your endowment policies, it's already higher than that ratio. Of course that is just a guideline, you have a cleared picture of your needs.

Looking at the policies, you seem to have a high concern on CI and Disability, does the work you do have those kind of risk? I think it would be good to have a portfolio review to see whether there could be an over-lap of policies.

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Firstly, one of the most important things to do is to have a complete understanding of your existing insurance portfolio. Through this process, it allows us to understand the coverage that we have, any financial gap, as well as to find out whether we are overpaying for our insurance policies. I have highlighted the rest of the reasons here: https://www.blog.pzl.sg/why-every-client-needs-an-insurance-policy-summary/

Next, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

Next, here is the general rule on how much insurance coverage you should have:

10% to 20% of your annual income on healthcare insurance and life insurance

Basic Life Cover = 10 times your annual income

Critical Illness Coverage = 5 times your annual income

At first look, it feels like you are having the basic essentials, e.g. healthcare insurance. For your life insurance like PruTriple Protect and AIA Secure Term Plus, it will depend on the coverage and whether such coverage fits into your profile for the long term.

The best way to do this is to have a comprehensive insurance portfolio summary and to sit down with your agent to conduct a comprehensive financial planning to understand more about you and how you intend to plan for your future. Then, we can conclude whether you are having too much insurance coverage.

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