Term Life Insurance
Critical Illness (CI)
Asked on 14 Jun 2020
24yo female, 2 dependents (parents), annual salary probably about 32k-35k.
I'm going to work on the assumption that you have hospitalization coverage already. If not, that should be the priority.
You will then need to protect yourself and your income. This is where critical illness insurance comes in. This provides a sum of money for you to cover your expenses and other out of pocket costs should you fall critically ill and are not able to work. I usually recommend to cover at least 5 years of expenses and an additional sum to cover your out of pocket.
This is usually via a limited payment life plan, or a term plan, depending on your budget/needs. Based on the information you provided, you need to get at least around $150K CI cover. If you want early CI cover, a limited payment life plan with a multiplier should be cheaper than a term till 65/70 with the added benefit that your coverage still remains after 70.
I won't be giving any recommendations here, but I can say that you can speak to an independent financial advisor to get an idea of which insurers provide such plans as well as their features and cost. This will aid you in making a decision.
Next, for death/TPD cover, you'll also need this to provide a lump sum of money should something happen to you. For the coverage amount, you could use a multiple such as 10 x of your current income, or calculate based on your current liabilities (how long you think you need to support your parents for times how much you need).
This is most cost effective on a term plan. If we use 10 x annual income, you will need around $350K, but it is not that much more expensive to get $500K as there is a discount if you get a larger sum assured. However if you calculate based on liabilities, the amount could be more. It really depends, and I'd suggest you sit down and work things out with an advisor (and also to get quotes). As for the recommendations, term plans are pretty straight forward and practically similar, so the cheapest plan would be the best.
I'd recommend you get both together. It's very possible to cover hospitalization, CI and death/TPD with less than 10% of your income, especially more so now that you are young.
Good to be prioritizing getting a CI plan especially before August due to the change of definitions of CI industry-wide (counting down to 2 months) that will probably narrow CI definitions, affecting your claims experience. Sum assured can range from 3-5 months of annual income to cover for the years you might be unable to work.
Term insurance is a good choice, it's highly affordable for a high coverage compared to a Life plan, especially at your age. In general, a good sum assured will be sufficient to cover liabilities like mortgage loans etc. My client's coverage usually range from $500,000 to $1,000,000 so they can hedge against a liability and leave something behind. Do take note that you look out for insurance that allows you to nominate beneficiaries since you have dependents.
Whether you should get both or not now highly depends on your budget as well. Nevertheless, it's always best to settle the insurance side ASAP at a young age. You don't want to be in a position where a pre-existing condition sets in unexpectedly and affect your insurance applications in the future. Also, it tends to be cheaper the earlier you get it. Insurance should generally not take up more than 10% of your monthly income.
Will love to help you with recommendations if you need :)
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Generally, life insurance coverage can be split into three life's major event,
Total & Permanent Disability
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 if you are single. For example, do you have any dependents? Do you have any liabiltiies?
Based on the latter example, just because you are single doesn't mean that your liabilities will be written off upon death. Therefore, there exists a need for proper estate planning to this end.
Total & Permanent Disability
Since you are alive and continues to live, there exists a need to be insured.
Similar to the rationale for Total & Permanent Disability, there exists a need for you to be insured.
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.
Hi! If you have the budget, it is best to get all your insurance coverage as soon as possible when you're young because the premiums are much cheaper.
For yourself, I would recommend to take a term insurance with sum assured of at least $350k till age 65 as usually after 65 years old , people will most likely have no liabilities and no need for life coverage.
However, if you wish to have a plan with cash value, you should opt for a life insurance. This means, once you reach 65 years old and wishes to terminate your life plan, there will be a lump sum of amount given.
(A recommended amount for life coverage is 10 x your annual income. However, if my clients have young children, i would recommend that the number of years should be till they reach 21. Eg. Youngest is 2 years old, sum assured is 19 years * annual income)
For CI, the recommended sum assured is to have 3-5 years of annual income. For your case is, $100k to $170k. I would recommend you to survey on AIA Power Critical Cover as it covers a wide range of CIs, allows you to claim 5 times the sum assured and most importantly covers relapse of cancer, heart attacks and strokes.
Hope this is helpful!
If you do need more info, you can reach me at https://m.facebook.com/familyfinanceguide/ 😊
I would suggest covering both at a reasonable budget, rather than then going for either.
Sum assured for life insurance depends on,
your liabilities, such as study loan, housing loan (may not be applicable now) etc
the amount you want to leave for your parents, or maybe cover last expenses.
For CI, you will be looking at cost of treatments (that is not covered by hospitalisation plan which I hope you do have, this is the most basic form of insurance!), and living expenses along with cost of not being able to work.
At your age, I think it would be good to look at getting a whole life insurance first, reason being, a whole life insurance usually has critical illness element built into it and also it is good to have coverage against critical illness throughout your life. So in that sense it's not either or, but both and, which I think means your concern.
Also in regards to getting term, it is good to have a term coverage till retirement as that will provide us the best cost efficient income protection due to the value and affordability term gives (affordable and high coverage).
Some guidelines in regards to sum assured you could use the most straight forward method of;
10x your annual income for Death and Total Permanent Disability
5x your annual income for Critical Illness
2 - 3 x your annual income for Early Stage Critical Illness
But this is just a guideline, to have a better idea for your situation it might be better to discuss with an agent, as usually your expenses and other financial obligations are also considerable factors when it comes to sum assured.
Do reach out if you have further questions
This is a straightforward question that depends on two things 1) how you plan your future; and 2) budget.
Above all, we need to spend quality time to have a better understanding on how you wish to plan for your future. Through this process, it helps us to set forth and how to use the right financial instrument to cover the gaps.
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:
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
Looking at your profile, providing for your parents is certainly important. And we need to look beyond here. For instance, will you be starting a family in the future? Will you be owning your own property some day? All these information helps us to set the right budget and coverage that you need.
With this in mind, I will suggest for you to speak with your agent or feel free to reach out for a comprehensive financial planning.
I share quality content on estate planning and financial planning here.
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