Regardless of your age or health today, an unforeseen accident or illness can rob you of your ability to provide for your family. While no one likes planning for the worst-case scenarios in life, doing so can leave your family on solid ground in your absence.

 

This makes it critical for you to understand your protection needs and existing insurance gap, as well as put in place a prudent plan that will be sufficient for your loved ones to tide themselves through over the long-term.

If your family is reliant on the income that you bring in, it makes sense for you to create an instruction manual that will serve as a central database for your family to access your assets, personal information and receive instructions.

 

This database of information should include the assets that you own such as your bank accounts, investment accounts, insurance policies, properties and even people who owe you money, as well as any valuables you have in the house or deposit boxes, and cryptocurrency wallets.

 

It should also contain your debt information with credit card companies as well as personal loans and home loans with any banks.

 

It should detail account numbers, websites, contact details of your representatives, online username and login details, passwords, pin numbers, and any other relevant information for each account.

 

Further, you can include a list of recurring payments you have to make on a monthly basis. This may include utilities, telecommunications, insurance, investments, mortgage, car instalments and other payments.

 

Even if your loved ones already know most of this information, having this "instruction manual" will help smoothen the transition process of paying bills as well as alert your dependents on the relevant responsibilities they need to take over.

 

One other thing you may want to do is leave details of where important papers and files are kept. Including scans of all legal documents and important papers can also be extremely helpful.

 

You may also want to consider leaving behind login details to your social media accounts, personal computers, mobile phones and devices, as well as any other digital assets you may have.

 

Last but not least, it will also be nice to leave a note behind for your family members.

 

The best place to store this information should be on a digital platform, such as a USB flash drive. Label it carefully and tell your loved ones about it so that they will know what to do when the time comes.

Your family's first layer of protection comes in the form of your emergency funds. This provides a safety net that will kick in before your loved ones can access any insurance payouts, assistance from the government, family members or friends. This safety net also allows them more time to liquidate otherwise illiquid assets such as cars or property investments.

 

Your emergency funds also act as a buffer in the scenario you can't work because of illness or injury. In addition, it also helps you to pay for unexpected big-ticket expenses without disrupting your daily lives.

 

A common rule of thumb is for couples to set aside between six to twelve months of monthly expenses as their emergency funds. Deciding on the exact amount could be based on how much job security you enjoy – working in public service versus being an entrepreneur – or even your current financial commitments – understanding whether your expenses are fixed or if you can easily scale down your expenses if required.

You want to ensure that your loved ones continue being able to live a similar standard of living even if you are no longer around. This is especially crucial if they were dependent on your income. To do this, you need to identify relevant costs areas, and plug any coverage gaps that you may have.

 

Here are some cost areas that you need to provide adequate coverage for.

 

 

In the situation you pass on, your dependents will need to take care of your final costs. If you have diligently kept an emergency fund, that could go towards paying for this expense. According to the Life Insurance Association (LIA), average funeral costs is estimated to be close to $10,000¹.

 

 

Unpaid services refer mainly to the household chores and caregiving duties, to children, other adults, or elderly parents, who you provide. In your absence, your family may have to hire a domestic or healthcare worker to do them.

 

The LIA estimates this cost to be close to $286,000 per working adult¹.

 

 

Your loans include personal loans, car loans, housing loans, credit card debt and any other debts or loans that your dependents will need to pay off, either by taking over or using your assets.

 

The LIA has calculated the average outstanding loan for working adults to be an estimated $208,000¹.

 

 

If you have young children, they have ongoing needs, including university tuition fees, enrichment classes, food, clothing, and entertainment among others.

 

Typically, you should plan for your children to become financially independent only after they turn 20. The LIA estimates that each working adult will need to cater an estimated $79,000 for their children. This is based on average households in Singapore, which means that if you have more children, you should expect greater coverage needs¹.

 

 

If you have parents or parents-in-law that are dependent on your income on a daily basis, you need to ensure that your coverage is sufficient to provide for them. You need to take into consideration their life expectancy and standard of living as well.

 

LIA estimates that average working adults require $62,000 in coverage for elderly dependents¹.

 

 

The needs of the surviving adults is broken down into two cost components – rent and future household expenses.

 

Rents need to be considered for both elderly parents and spouses. LIA estimates the rent liabilities of each working adult to be $54,000¹. Of course, this could be more or less depending on your unique situation.

 

The second cost component is the future household expenses, allowing for inflation. This excludes rent, children and elderly dependents, as they have been separately calculated in earlier cost components.

 

LIA estimates that working adults will have to provide for household expenses of $855,000¹.

After adding up all the expenses you would have to cater for in the event of an unforeseen circumstance, you will arrive at your total protection needs. According to LIA, this typically amounts to about 9.0X your annual income¹.

 

However, this isn't necessarily what you need to provide for in insurance coverage. You should deduct this figure with any assets that you currently have, including your CPF savings, bank deposits, as well as other investment assets that you have such as stocks, bonds, properties and even jewellery.

 

The final figure you are left is how much your loved ones will need in the event you are no longer around to provide for them.

 

In most cases, you would already have some basic level of insurance coverage. What you need to pay attention to is your insurance coverage gap – which is the additional amount that your loved ones will need in the event you are no longer around as compared to how much assets and insurance coverage you currently have.

 

On average, people in Singapore have a mortality coverage gap of close to 2.1X of their annual income and a critical illness coverage gap of 3.1X of their annual income¹.

 

For reference, your mortality coverage gap represents the financial gap to cover the needs of your dependents over a defined period in the event you are no longer around. This is the difference between your assets, including savings, CPF balances and existing insurance coverage, and your dependents future expenses, including living expenses and debt left behind.

 

Your critical illness coverage gap represents the financial gap to cover the needs of you and your dependents for a five-year period, which is assumed as the recovery period. This is the difference between your existing insurance policies (but not savings, as it is assumed to be for your retirement should you recover), and your expenses, including living expenses and ongoing debt payments.

If you are still unsure of how much more you need to set aside for your loved ones, you can use this handy protection gap calculator by the LIA.

 

By knowing how much your loved ones would need to tide them through in your absence, and covering any gaps in coverage you may have, you will be able to live life confidently.

 

Of course, your protection needs are constantly changing as you transit into a different life stage, including when you turn 18, get married, have a child, adopt a child or lose your spouse. This makes it crucial to review your coverage on a regular basis.

 

AIA Guaranteed Protect Plus (IV) helps you cover all your bases with an all-in-one plan meeting your changing protection needs, in the event of death, total permanent disability or critical illness, and your savings needs, to leave to your loved ones. You also have the flexibility to increase your coverage level when you enter a new stage in life. This can be exercised once and can be done without additional underwriting.

 

At the end of the day, having adequate coverage gives you peace of mind and frees you to focus on the most important things in your life.

 

By embarking on AIA Vitality, you also enjoy free additional coverage of up to 25% of your boosted coverage amount. By improving your lifestyle, and AIA Vitality status, you also get additional perks and discounts.

 

Contact your trusted AIA financial consultant to find out more about the AIA Guaranteed Protect Plus (IV) today.