How Much Insurance Coverage Do You Need? A Step-by-Step Guide

What Happens to Your Loved Ones If You’re Gone Tomorrow?

If something happens to you unexpectedly, will your loved ones be financially secure?

A 2023 study found that over 50% of Singaporeans are underinsured, meaning their families could struggle with daily expenses, outstanding loans, and future financial goals if they pass away.

Let’s take a moment to think about this:

• If you’re married with kids, will your spouse have enough resources to raise them without taking on multiple jobs?

• If you’re supporting your aging parents, who will cover their medical bills and living expenses?

• If you’re single, do you need coverage at all? Or would you want to leave a legacy behind?

Rather than guessing how much insurance coverage you need, this guide will take you step by step through the calculations—so you can be confident that your family is well taken care of, no matter what happens.

Step 1: Accounting for Your Parents

Many of us in the sandwich generation face the dual responsibility of taking care of both our parents and our own families. If you’re financially supporting your parents, ensuring they’re provided for in your absence should be a key consideration.

Case Study: David’s Story

David, 40, provides $1,500 a month for his retired parents’ daily expenses, medical costs, and insurance premiums. If he passes away, his parents still have 20 years ahead of them, based on the average mortality age in Singapore.

Without coverage, David’s parents would have to rely on their limited savings—or worse, struggle to make ends meet.

How to Calculate Coverage for Your Parents:

1️⃣ Add up their monthly expenses (food, utilities, medical, insurance premiums, loans).
2️⃣ Multiply this amount by the number of years left until they reach life expectancy.
3️⃣ Adjust for inflation to ensure the payout remains sufficient.

➡ Take a moment to calculate: How much do your parents rely on you financially? If something happens to you, will they have enough to sustain their current lifestyle?

Step 2: Accounting for Your Children

If you have children, your insurance should cover their needs until they become financially independent. This includes daily expenses, childcare, and education costs.

Ask Yourself:

✅ Will your spouse be able to provide for the family alone?
✅ Do you want your spouse to avoid taking on multiple jobs just to survive?
✅ Do you plan to fund your child’s university education, whether locally or overseas?

Case Study: Mark’s Dilemma

Mark, 35, has two young children (ages 3 and 6). His household expenses are $5,000 a month, and he plans to fund their university education at $100,000 per child.

If he were to pass away today, his family would need:

• $5,000 x 15 years (until the youngest child turns 18) = $900,000

• $100,000 x 2 (university tuition fees) = $200,000

• Total Coverage Needed: $1.1 million (before adjusting for inflation)

➡ Your turn: How much does your family need monthly? Multiply that by the years left until your youngest child turns 21. Don’t forget to include future education costs!

Step 3: Reducing Your Spouse’s Financial Burden

Beyond covering daily expenses and education, you may also want to leave additional financial security for your spouse.

Ask Yourself:

✅Do you want your spouse to maintain the same standard of living without financial stress?

✅Would they need extra funds for retirement planning if you’re no longer around?

Some people choose to leave an additional lump sum for their spouse to invest or use as retirement savings, reducing their financial burden in the long run.

➡ Something to think about: How much would you want your spouse to have if they had to go on without you?

Step 4: What If You’re Single? Do You Even Need Death Coverage?

If you’re single and have no dependents, you might not need death coverage at all. Unlike those with families to support, your financial obligations end with you.

However, some people still opt for coverage for personal reasons, such as:
✔ Leaving a legacy – Donating to a charity or cause you strongly believe in.
✔ Supporting loved ones – Helping siblings or extended family who may rely on you.
✔ Covering final expenses – Ensuring funeral costs and debts don’t fall on your family.

If none of these apply, you may be better off focusing on critical illness or disability insurance, which provides financial protection while you’re still alive.

➡ Your move: If you’re single, think about whether you want your wealth to make a lasting impact—or if you’d rather reallocate those funds elsewhere.

Step 5: Deducting Your Existing Assets & Policies – Does It Make Sense?

Before deciding how much insurance you need, it’s natural to consider what you already have—your savings, investments, and existing insurance policies. But should you deduct these assets when determining your coverage needs? Let’s weigh the pros and cons.

Pros of Deducting Existing Assets:

✔ Avoid Over-Insuring – You don’t want to pay for excessive coverage when your savings and investments can already support your dependents.
✔ More Cost-Effective – Lower insurance coverage means lower premiums, freeing up cash for investments or other financial goals.
✔ Aligns with Your Financial Plan – If your existing assets are sufficient, you can focus on protection for risks like critical illness or disability instead.

Cons of Deducting Existing Assets:

⚠ Liquidity Issues – Not all assets (e.g., property, long-term investments) can be easily converted into cash for immediate family needs.
⚠ Market Risks – If your investments fluctuate, their value may not be enough when your family needs it most.
⚠ Unforeseen Expenses – Medical bills, inflation, or unexpected financial burdens could reduce the amount your dependents actually receive.

What’s the Right Approach?

Rather than blindly deducting all assets, consider:

🤔Are your assets easily accessible in an emergency?

🤔Would selling your assets disrupt your family’s financial stability?

🤔Do you want to preserve your wealth for future generations instead of using it for immediate expenses?

Final Calculation:

✅ Total coverage needed (from previous steps) ➖ Deduct only the assets that are liquid and reliable
✅ The remaining amount is the coverage you should aim for

➡ Your move: Take stock of your existing assets, but ensure they’re truly available for your family when they need them.

Need Expert Guidance? Let’s Find the Right Coverage for You

Understanding how much insurance you need can be overwhelming, but you don’t have to figure it out alone. As a financial advisor with Financial Alliance, I have access to more than 10 insurers in the market, allowing me to provide an unbiased, tailored recommendation and independent based on your unique financial situation.

Let’s work together to ensure your loved ones are well-protected—reach out today for a personalised assessment!