Financial Planning – Protection #1
Disclaimer : I am not a qualified financial planner. This post is not intended to be a financial advice. You should seek professional advice from a qualified financial advisor.
You can pretty much buy insurance to protect against everything.. life, property, health, accidents etc..
I take a very pragmatic view if I have cancer, or meet with an accident etc.. I can choose not to seek treatment and go for the worst possible outcome – death. Hence life protection effectively covers all possible scenarios and is a must-have.
How much Life Protection?
My own philosophy is based how I expect my loved ones to cope without me. I am a source of income for the family – my parents, my spouse, my children. This is something I can protect using insurance. I canâ€™t do any about their loss of a child, spouse or parent.
My principle is to ensure that my loved ones can cope comfortably for (at least) 10 years.
Up until my early 30s, this means insuring my life for the equivalent of 10 years of income. The key word here is â€œcopeâ€. This means
- If I were to pass away, assume the same income with no increase for the next 10 years. As I work and my salary increases, I also increase my coverage and diversify across different insurers.
- As I retire in future, and my loved ones are no longer dependent on my salary for family income, I can also reduce my insurance coverage.
Hence, my life insurance is distributed 50% whole life insurance and 50% term life.
The term life coverage provides the additional cover for my working life, when my loved ones are dependent on me.
The whole life provides a gift for me to leave behind.
The amount of cover provided under whole life and term life have gradually increased until my early 30s.
Your risk is higher after ~35 years old and it will be more troublesome if you want to apply for insurance. It also gets more expensive.