This article outlines the surprising affordability of life insurance where many people over-estimate the cost as their major reason to not buy cover.
Any income-earning adult with financial dependents (a partner and/or children), whether:
1. a Singapore-based resident (expat / PR / citizen / EP holder), or
2. a resident of another S.E. Asian country (with the exception of Australia and Vietnam due to regulatory reasons), as you are permitted to “fly to buy” a policy in Singapore.
The High-Level Problem
I’m not going to win friends at dinner parties for asking the dreaded “Life Insurance” question, but here goes (and I promise not to get any more depressing than this, so brace yourself):
“What would the financial position of your loved ones be if you were to die tomorrow?”
Yes, I know; your own unexpected death is not something anyone wants to think about, but it is a possibility, however small, and this really is a question that you need to be brave enough to ask yourself.
The good news about the slim and unpleasant possibility of dying unexpectedly is that you can plan for it, and surprisingly inexpensively, as I’ll describe. So, stick with me here… there are some positives to come! We are over the worst.
People Are Strange
We insure our cars, our pets, our household contents, our vacations, but are strangely reluctant to insure our own lives.
A recent study which looks at trends and perceptions on the topic of life insurance found that:
- 30% believed that they needed more life insurance
- 43% thought they would feel a financial impact within 6 months if the primary wage-earner died
BUT, having acknowledged that they had a need:
- 54% said it was unlikely that they would purchase life insurance within the next 12 months
Logically, these percentages just do not compute. They are evidence of the awareness of a need, but the unwillingness to take steps to meet that need.
So, what is the single most commonly cited reason for not purchasing life insurance?
Life Insurance misunderstanding #1: it’s too expensive!
An astonishing 80% of consumers surveyed misjudged the price for term life insurance (for which the policyholder pays a fixed regular premium to provide cover over a period of time; usually taking them up to retirement age), with:
- Millennials (age 22 – 37) over-estimating the cost by 213%
- Generation X (age 38 – 52) over-estimating the cost by 119%
Busting the “it’s too expensive” myth
Consider the following case studies of non-smoking professionals living and working in Singapore, and with plans to retire at age 60.
To calculate the requirement for life cover, we look at what value of housing, income, education, and university funding the person to be insured would like to provide for their family, should they die, at both a “minimum” and an “ideal” level. From these estimates, we subtract what they currently have in terms of assets against these categories, to assess the total remaining need to be insured for.
Quotations are based on all preferring to pay a monthly premium (paying annually would result in an additional 2% discount).
- Mark, a British banking executive of 35 years of age, is married to Helen. Mark and Helen have two young children who haven’t yet started school. Mark and Helen’s only significant debt is an outstanding mortgage on a property in the UK, equivalent to S$600,000. They have S$500,000 equity in the property and it is not rented out, however Mark receives passive income from a trust of S$3,000 monthly. They have no significant savings or investments currently. They expect both children to attend school (ideally private [S$25,000 per year per child, for 7 years] rather than state) and to study for at least one 3-year university degree [S$20,000 per year per child] (plus, ideally, a 1-year postgraduate masters).
- Mark decides to aim for cover somewhere between the minimum (S$1,320,000) and ideal (S$4,110,000) cases. He therefore asks for a quotation for S$3,000,000 of cover over a 25 year period.
- Indicative monthly premium: S$189
- Marie, a Canadian teacher of 45 years of age, is married to Frank and they have a son at university (with two more years of study left). They have no significant debts now or planned, and own the S$1,000,000 property they live in, with no mortgage. They have around S$200,000 of investments and cash.
- Marie decides to aim for the upper end of the minimum (S$1,040,000) and ideal (S$2,460,000) cases. She therefore asks for a quotation for S$2,500,000 of cover over a 15 year period.
- Indicative monthly premium: S$206
I’ll leave you with two points well worth noting on whether or not “now” might be a good time for you to consider purchasing life insurance:
1. The life insurance market has experienced something of a price war over recent years in Singapore, resulting in significant reductions in premiums, to the benefit of consumers here. How long that will last, with one of the big players (Zurich) having now left the market, is unclear.
2. As a general rule: the earlier one purchases a life insurance policy, the more affordable the premium will be. Life insurance companies punish procrastination!
“What price peace of mind?” Well, I invite you to just take the first step: ask for a quotation!
Michael Davidson is a Singapore-trained and qualified Financial Adviser with Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore.
Book a complimentary consultation here. Please quote reference “804LI”.
Global Financial Consultants Pte Ltd – Reg. No: 200305462G | MAS License No: FA100035-3
*Please note that Michael Davidson is not a tax specialist or accountant and that none of the content outlined here should be taken as personal advice. You should consult your tax specialist and financial adviser to review your current financial situation and futures goals to consider whether this strategy is appropriate for you. I expressly disclaim all and any liability to any person or organisation, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether whole or in part, upon the whole or any part of the contents of this article.