Are there available standardised computation templates that we can rely upon to work out our protection needs and gaps? - Seedly
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Asked on 06 Oct 2019

Are there available standardised computation templates that we can rely upon to work out our protection needs and gaps?

Would like to be able to work out my own plan without going through a financial consultant?

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While it may be possible in theory to have an idea of how much protection gap you may have, there is actually no single size fits all answer. This is why the human touch is still important in advisory. A good advisor is expected to separate the wheat from the chaff in order to construct a sound and reasonable plan to achieve the client's financial objectives. We're suppose to highlight things you might not have thought about, point out problems that may occur later, but that you need to address now, as well as to guide you through the confusing labyrinth of financial products out there to enable your understanding. After all, from our perspective as an advisor, you are tapping on our years of wisdom.

Let me give you an analogy. It's like when you're having a headache. You might want to self medicate with some panadol. If the headache persists, you might want to have something stronger like ponstan. But if you go to a doctor, he will be able to give you a more accurate diagnosis and perhaps ibuprofen will be called into the picture to cure you due to his years of experience and wisdom in realizing it was not a mere headache but a tension headache. Thus if it is something simple and 'off the shelf' then by all means, decide what suits you and purchase it. But if it is not that straightforward, you will want to sit down with a trusted independent advisor to discuss your situation.

So if you find yourself with a good advisor, give due consideration and trust the advice he or she dispenses. It's meant to benefit you, or the advice would not have been brought up in the first place.

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Eric Chia
Eric Chia, Senior Financial Consultant at Prudential
Level 6. Master
Updated on 09 Oct 2019

I'll share the resources here (since you prefer not to go through a financial consultant) but I need to highlight that having a standardised calculator wouldn't be as good as having a human touch to the calculations. You won't know your blindspot unless someone points out to you. If you are to run through the calculations by yourself, be sure to have an experienced and trusted family or friend to check that the assumptions you make are right and that you're not biased in the assumptions or miss out any critical variable for consideration.

LIA also has a neat calculator that you can use. You may like to take Life Insurance Association's (LIA) rule of thumb (see link for the assumptions that make up the rule of thumb), which goes as follows:

  • Death coverage should be 10 times annual income, e.g. if your annual income is $40,000, then your death coverage should be $400,000

  • Critical illnesses coverage should be 5 times annual income, e.g. if your annual income is $40,000, then your critical illnesses coverage should be $200,000

Hope this information helps!

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Eric Chia
Eric Chia

09 Oct 2019

Just to add on a caveat to the calculator I shared above. If you're single and no dependents, the calculator grossly underestimates your critical illnesses needs as it does not take into account daily expenses and caregiving costs in your critical illnesses coverage. The calculator also does not take into account inflation adjustments for the coverage.

There are hard numbers that you can input to calculate the amount of protection needs and gaps. But what may work for you, may not be necessary for others.

That's why it's important to tag a protection value on various items. Last time, DIY Insurance (Now MoneyOwl) have a template which you can use.

Common ones are Life insurance -- mainly for dependents. You have to think of what happens after you report early with passport stamped. So to calculate it, either pure expense based right up to university for children + parents expenses + charity (if any).

ECI/CI insurance -- mainly for your own income, savings required during the time of sickness, and also alternative medication not covered under the hospitalisation insurance -- might also have a change of job, or lifestyle change. Hence good to calculate the amount required.

Total Permanent Disability (TPD) - This will include Death coverage + additional medical/nursing expenses required for you due to TPD. This will be crazy to insure though if you cover everything.

Hospital insurance -- no need to calculate, but just have it to reduce medical expenses (if required).

Hope this helps.

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Kishor Bhagwat
Kishor Bhagwat
Level 5. Genius
Answered on 07 Oct 2019

Yes and No. There are 2 parts to doing this right. The first part is something you need to do - sit down and decide whats important to you in terms of life goals, needs etc. Put numbers against those. Then list down the risks you see to achieving those goals.

Then research the product categories available in the market to address those risks.

After this, you are prepared to meet the product salespeople and get educated on their products. Listen to their feedback on your plan, take quotes, compare with your budget - then take decisions. I wrote some of this process here-

https://m.facebook.com/groups/1758792264412132?view=permalink&id=1998025157155507

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