I'm currently paying 17% of my annual income to insurance and ILP. Is that too much? - Seedly
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Anonymous

Asked 2w ago

I'm currently paying 17% of my annual income to insurance and ILP. Is that too much?

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Hi anon,

As a general rule, you shouldn't be exceeding 10% of your income when it comes to your financial outlay for insurance, unless you have loading or are a sole breadwinner. Without knowing your profile, I can't really comment, but can only give you this guideline. It does seem a bit excessive to me however.

Classify your coverage by what you need, e.g. Death/TPD, Critical Illness, Hospitalization, and see which plans you have, cover which needs. Then you might want to have a review to see if there are better, more cost efficient ways to meet it.

Lastly, an ILP used for investment purposes only is not considered insurance and should not be included in that 17%. However, I strongly suggest against investing via an insurance policy. There are better ways to invest.

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It really depends on how ILP is stuctured, some ILPs have 0 insurance element which makes it more straightforward.

However combined with insurance it could get abit lumpy.

Usually using 10% of your income as a guide should be sufficient for a comprehensive coverage for health, critical illness, life insurance, personal accident and disability income.

However if you have family commitments it could go up to 15% especially if you have children (both paying for increased coverage for yourself & your children's inssurance)

I wouldn't classify endowments if you have any into the "insurance fund" as it provides minimal coverage and is meant more to accumulate wealth for the long term.

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Hey there!

It depends really on your needs and your current life stage. Insurance should take up, approximately and maximum 10% of your annual income. But of course, if there are cost-efficient ways to do it, eg. taking up a Term plan instead, doing away with CI riders if you have a standalone CI plan, then you'll have to relook at your previous insurance objectives and make adjustments accordingly.

ILP will be a different story because, depending on the nature of the ILP, it will fall under your wealth accumulation allocation in your budget which is separate from insurance.

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

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All your budgeting questions can be answered and calculated here:

https://www.aaronleow.com/calculators

If your ILP combines both investment and whole life coverage, than it isn't too much. Because a portion of that allocation goes toward investment. It is likely that your insurance charges only comprises a small portion of the premiums monthly. This will depend on your age.

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How much insurance coverage should You have?

As a general rule,

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

Meanwhile, we need to know more about your investment-linked policy to determine whether it is for protection or for investment. In effect, it gives us a better understanding on the income allocation.

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

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