How much coverage should I get for whole life insurance as a fresh grad? - Seedly
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Anonymous

Asked on 01 Jul 2020

How much coverage should I get for whole life insurance as a fresh grad?

Fresh grad with job paying ~3+k but paying off student loan. 200k sum assured was recommended by my agent (given my budget). But what are the other ways to calculate how much coverage do I actually need?

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Hi anon,

Broadly speaking, $200K sum assured is a decent amount to start off with. I'd generally use the following guideline: 5 years of expenses (this is dependent on you) with a lump sum for out of pocket costs (usually around $100K). This usually ends up in the region of $160K-$180K for many people and hence $200K would be a decent amount, factoring in inflation over time.

The more important thing is to get CI cover because you lack it, and not because you were told to by someone. You are young and hence your insurability is still there. Over the years, as your life stage changes, you can review and re-visit your coverage, assuming you are still healthy.

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Hey there!

In general, these are the guidelines for specific coverages:

  • Death, TPD: 10x your annual income

  • CI coverage: 3-5x of your annual income

The guidelines are as such to cover for your essential working years and in the event you are unable to work, there is a form of coverage to provide for you in the unfortunate event CI strikes.

The assumption of course is that you are single. In the event you have liabilities and you are married with dependents, your needs will evolve and your coverage will have to increase. All the best!

Financial planning is an integral part of life. You can reach me here to find out more.

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Generally, life insurance coverage can be split into three life's major event,

  1. Pre-Mature Death

  2. Total & Permanent Disability

  3. Critical Illness

Death Coverage

There are a couple of factors that we need to clarify and plan before we can establish whether there is a need for death coverage. For example, do you have any dependents? Do you have any liabilities?

More Details:

5 Reasons why You need Life Insurance - Death Coverage

Total & Permanent Disability

Since you are alive and continues to live, there exists a need to be insured.

More Details:

5 Reasons why You need Life Insurance - Total & Permanent Disability Coverage

Critical Illness

Similar to the rationale for Total & Permanent Disability, there exists a need for you to be insured.

More Details:

5 Reasons why You need Life Insurance - Critical Illness

On the whole, these are general guidelines which may or may not work for you. Therefore, you are encouraged to conduct comprehensive financial planning. Through this process, it ensures that we are well-planned ahead in life.

I share quality content on estate planning and financial planning here.​​​

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PolicyPal
PolicyPal, Official Account at PolicyPal
Top Contributor

Top Contributor (Jul)

Level 7. Grand Master
Answered on 02 Jul 2020

As a general rule of thumb, it is recommended that you spend around 10% of your income on Insurance products.

Ensure the basics such as hospitalization and critical illness plans that would cover you from the hefty medical fees in the unfortunate event that you encounter a medical emergency. Some good health insurances you can consider are AXA Shield by AXA (only insurer with outpatient and PA benefits embedded into the cash rider) or the Great SupremeHealth by Great Eastern. You might also want to add on or purchasing a Critical Illness plan to ensure you are well covered.

Feel free to contact us if you require a detailed analysis based on your personal financial situation.​​​

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Tay WenHao
Tay WenHao
Level 7. Grand Master
Answered on 01 Jul 2020

Firstly, to determine your coverage, there alot of different ways. For myself, I calculate based on my liabilities which includes my debts and also my parents retirement. As my parent doesnt have much savings, they will depend on my income for retirement. If one day I am gone, I need to ensure enough money is left behind for their retirement.

Assuming 2k/mth, 1 year 24k, assuming they live for another 40 years, roughly 1mil. But that said, I didnt factor in inflation etc.

Next, with regards to "200k sum assured was recommended by my agent (given my budget)", if you determined you need a higher coverage, i will recommend you to go for term life first. Cheaper with higher coverage. In future when you earn more then go for whole life.

For myself, my term life 750k was only $300+/yr. On top of that, I also got Aviva Mindef Personal Accident 600k at $77/yr. So if I die from accident the payout would be around 1.3mil

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