How Much Life Insurance Do I Need?
“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.”
- Suze Orman
It is a sad reality that for many, the true value of life insurance is only discovered when it’s too late, or when they’ve had a family member or friend go through the process of discovering that they did not have the appropriate amount of life insurance in place, or even worse, that the cover they thought they had in place was not actually valid.
One of the most important pieces of my personal financial strategy is my Term Life Insurance Policy. The key reason that I have term life insurance is become I have a mortgage on my investment properties in Australia. When I have children in future, I’ll then look to increase my life coverage amount to a higher amount to ensure they are cared for and their education costs in particular will be covered.
As a general rule of thumb, if you have family that you care about and do not want to suffer the financial burden should the unforeseen occur, then it’s time to ensure you have the right level of life insurance in place. Not only is it important to ensure you have the right amount of cover in place, but that it’s valid and will be paid out in the event that you pass away.
First, let’s look at what factors you should be covering with your Life Insurance policy
- Avoid Forced Property Sales: It’s generally important to ensure that if you were to pass, that your family would have sufficient funds available to clear any existing mortgage on your property.
- Cover Your Expenses: It’s always a sensible idea to ensure that you have at least 2 – 4 years’ worth of living expenses covered for your surviving family members.
- Pay For Your Funeral: Funerals can often be expensive, and this is particularly the case if you have not explicitly outlined your wishes in your Will. Surviving family members will often want “what is best” for you, which often means an expensive casket and the best service that money can buy. An average funeral cost can be upwards of $15,000.
- Repatriate Your Family: If it’s unlikely that your surviving family would remain in Singapore or elsewhere, consider having sufficient life cover available to allow them to cover the costs of returning home. The average repatriation cost for a family is $25,000.
- Education Costs: Personally, I always prefer to ensure that the education costs are fully covered where children are involved. This is particularly the case where there is a sole breadwinner in the family. This could be limited to primary and secondary education, or also cover university / college costs, so it’s important to have this discussion as a family.
Now that we know what factors should be covered by our life insurance policy, let’s consider some of the most common mistakes that we see both Australian residents and expats make when it comes to their life insurance.
These are the most common Life Insurance mistakes made
- “My employer cover is enough”: This may in fact be the case, however many people when asked exactly how much this employer cover is have either no idea or can’t quite recall. There is also the added risk of not remaining with this employer forever, and trying to obtain life cover at a later age if you happen to have left the company and your new employer doesn’t provide life cover at all. It’s important to review your employer provided life insurance and consider whether a top-up is required for you.
- “I already have life insurance in my superannuation”: An all-too common response to the life insurance question is that it’s already within my superannuation account. While it may be true that an appropriate amount of cover is in fact held inside your super fund, many of these policies will not actually cover you now that you’re living and working abroad. This is often clearly outlined in small font somewhere in the middle of the Product Disclosure Statement (PDS), and therefore you could have been paying premiums for years without realising that you weren’t actually covered.
- “I don’t work so I don’t need life cover”: It is quite common in Singapore and other Australian expat destinations for one spouse to be the sole breadwinner, and the other to look after the family. It’s important to consider here the morbid case of exactly what it would cost to replace the services and activities carried out by the non-working spouse. This often includes cooking, cleaning, looking after the children, taking care of the household finances, paying the bills and general personal administration. The likelihood that these activities could be replaced without cost is highly unlikely so it’s important to explore cover for your non-working spouse.
- “Who cares, I’ll be gone”: If you truly have nobody in your life dependant on your income or financials, then you may in fact genuinely have no need for life insurance, however if this is not the case it’s an important one to review. Even if both partners are working, and if only one was generating an income you could comfortably cover your cost of living, the period of emotional turmoil and grief following the loss of a loved one can impact us in ways we can’t imagine, so be sure to explore the scenarios and consider what’s right for you.
What type of life insurance do I actually need?
There are many considerations when it comes to setting up your life insurance, particularly as an Australian expat. These include whether it is a Term, Universal or Whole-of-Life policy, what currency the policy is held in, whether it covers you globally and how easily you can make changes to your coverage. There is no ‘one-size-fits-all’ approach here, but for many Australian expats, it may make the most sense to have a term life insurance policy that covers you until retirement, denominated in Australian Dollars (AUD), covering you globally that you can make changes to if your life circumstances change.
Be sure to seek appropriate advice here, as there are many considerations when it comes to your personal insurance, and it’s important to get it right the first time.
Click here to use our online life insurance calculator to find out how much term life cover you should have in place -
Contact me to discuss who is the right insurance provider for you and ensure that you have the right level of insurance to provide you and your family with the peace of mind you deserve.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.
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