I am an undergraduate, thinking of taking over insurance for myself. I understand that the general rule of thumb for life insurance is to get a coverage of around 10-15x one's annual income. May I know the reason for this?

Hi anon,

As you currently do not have dependents, then it is not strictly necessary for you to get death/TPD coverage from a term plan at the moment.

However, once you start working, you might need to get covered if your parents or family will be dependent on you. This protects your future economic value. Current rules of thumb dictate 10 times of your annual income, but this is just a guideline and should be reviewed and adjusted based on your situation, liabilities, and dependents. 10x-15x of your annual income will basically provide a lump sum of liquidity that buys enough time for your family to figure out what to do and readjust their lifestyle.

You will also want to consider critical illness insurance if you are about to step into the work force in order to provide coverage for yourself should a critical illness render you unable to work. If you have sufficient savings, you may want to consider getting coverage a year or so before you start work, locking in your premiums at a lower rate, but more importantly, your insurability.

Although your question is about life insurance coverage, but I will highlight also that you'll need hospitalization coverage as well.

Hi Anon,

The guideline of 10 - 15x your annual income is based on the belief that within that 10 - 15 years, your loved ones will be able to figure out what they ought to do to ensure their personal sustainability of life. So yes, you are right on that being able to support your family for 10 - 15 years ideally.

In regards to not having an annual income now, what coverages do you have already? If you do already have a life insurance, I think you can hold off the term insurance first. As the current sustenance is of a higher importance now.