What’s the right life insurance coverage for you?

Most people don’t wake up thinking about life insurance. It’s not exciting, and it doesn’t offer the kind of dopamine hit that investing or saving for a holiday might bring. But if anyone depends on your income—whether that’s your children, your spouse, or your aging parents—life insurance quietly becomes one of the most critical parts of your financial plan.

And the big question that often comes up is this: How much life insurance coverage do I actually need? The answer isn't hidden in a spreadsheet or sold by a persuasive adviser. It's in your timeline, your dependents, and your goals. Let’s walk through this clearly, calmly, and with structure—so you can plan with confidence, not confusion.

Step 1: Clarify Who You're Protecting—And For How Long

Start by asking: “If I pass away tomorrow, who will immediately lose financial support?”

If the answer is no one, your focus might shift to disability and illness coverage (we’ll come back to that). But if you support a spouse, children, or parents—your income is a system others rely on. And that system needs a replacement.

Take this example:

Michael is 35, married, with a three-year-old son. He contributes $2,000 a month to household expenses. His wife also works, contributing the other $2,000. The couple provides an additional $400 per month to Michael’s retired parents. If something happens to Michael, his income disappears. His wife may not be able to double her contribution overnight. His parents would lose a reliable allowance. His child would still need support for the next 20 years.

That’s the planning base. Protection isn’t about a lump sum—it’s about sustaining a system.

Step 2: Estimate the Income You Need to Replace

Now ask: “How much of my income would need to be replaced—and for how many years?”

Michael’s portion of household expenses is $24,000 annually. He also provides $4,800 a year to his parents. Combined, that’s $28,800 of annual support. To be conservative, we’ll round that to $30,000. There are two ways to model how much life insurance coverage he needs:

Option A: Full Income Replacement Over Time

Multiply the annual income you need to replace by the number of years it’s needed.

In Michael’s case:
$30,000 × 20 years = $600,000

This assumes the payout would be drawn down over time, without reinvestment.

Option B: Passive Income Generation

If your family prefers not to draw down the payout—and would rather invest it to generate annual income—you’ll need a larger capital base.

Assuming a 4% conservative return:
$30,000 ÷ 0.04 = $750,000

This method allows the principal to remain intact and generate income indefinitely. It’s commonly used by higher-income families who want multigenerational financial continuity.

Step 3: Add Any Lump Sum Obligations

Aside from regular income replacement, you’ll want to consider any one-time or major costs:

• Children’s education: Will you fund university tuition separately or fold it into the monthly support?
• Unpaid personal loans: Credit card or personal debt that’s not insured
• Last expenses: Funeral costs, estate duties, or legal fees
• Financial gifts: A lump sum for your child’s first home or marriage fund

For education funding, if you’ve already started a separate portfolio with 6–8% expected annual growth, you may not need to double-count that in your insurance amount. But if you haven’t? Add the cost. In Singapore, a four-year local university degree may cost $40,000–$60,000. If you're sending your child overseas, expect six figures.

Step 4: Consider Existing Assets and Coverage

Once you’ve estimated how much support your dependents would need, subtract what you already have in place:

• Cash savings and investments earmarked for family support
• CPF savings that can be withdrawn upon death
• Employer-provided life insurance coverage (check whether it continues after you leave the job)
• Mortgage coverage (if already protected under a Mortgage Reducing Term Assurance or MRTA)

If your mortgage is fully insured separately, don’t include it again in your life insurance calculation. The goal is to avoid over-insuring or double-paying for protection you already have.

Step 5: Adjust Based on Your Life Stage

How much coverage you need changes dramatically depending on your age and financial setup.

If You’re in Your 20s or Single With No Dependents

You may not need much life insurance at all. But you should strongly consider:

• Total and Permanent Disability (TPD): To replace income if you become unable to work
• Critical Illness (CI): Cancer, heart disease, and stroke can hit in your 30s. The average age for cancer diagnosis in Singapore is mid-40s, and recovery can take years. Aim to cover 3–5 years of income.

You’ll also want hospitalisation coverage—usually through MediShield Life or an Integrated Shield Plan.

If You’re in Your 30s to 40s With Young Children

This is peak protection age. You have multiple dependents, income risk, and long timelines.

• Life insurance coverage should span at least until your youngest child turns 21 or 25 (if you’re covering university).
• CI and TPD coverage should match 5 years of income, minimum.
• Reassess coverage every 3–5 years as income and expenses change.

If You’re in Your 50s or 60s

If your children are financially independent and your mortgage is fully paid, your coverage needs often reduce. At this stage:

• Focus on hospitalisation, long-term care, and legacy planning
• If you’re still supporting a spouse or planning to leave a gift, consider a whole life or limited-pay plan structured to build value for estate transfer

Step 6: Don’t Skip Disability or Critical Illness Planning

It’s tempting to view life insurance as a “death-only” discussion. But many policyholders—especially younger ones—forget that disability or critical illness is statistically more likely than early death. If you survive a major illness but can’t work, how long would your emergency fund last?

A good starting benchmark:

• TPD cover: income replacement until your planned retirement age
• CI cover: 3–5 years of income for recovery time

Remember: Medishield Life won’t replace lost income. It only covers hospitalisation costs (and not in full). You still need a cash flow buffer for daily living, mortgage payments, and caregiving needs.

Step 7: Term vs Whole Life—What Matches Your Planning Horizon?

Most people don’t need life insurance “forever.” They need it for as long as they have financial dependents. That’s why term insurance is often recommended for young families. It’s cost-effective and can be aligned precisely with your need timeline—e.g., 20 years until your child finishes school.

However, whole life insurance (or participating whole life plans) might make sense if:

• You want a payout regardless of when you pass away
• You’re planning for legacy or estate transfer
• You prefer a forced savings structure

Use this litmus test:
“Will I still need income replacement in my 80s?”
If not, term insurance is likely more appropriate—and cheaper.

Step 8: Buying Online? Do the Planning First

Singapore’s Direct Purchase Insurance (DPI) market allows you to buy certain term and whole life policies directly from insurers without going through an adviser. The benefit? Lower premiums and no commission costs.

But there’s a catch: you need to know what you want and why.

Before buying online, clarify:

• Your target coverage amount
• Your required policy duration
• Whether you need riders like TPD or CI

Comparison platforms like CompareFirst can help—but they don’t replace your role in designing a protection plan. You’re the planner, not just the purchaser.

The right life insurance coverage doesn’t start with a product. It starts with a plan. It’s not about having the “highest” number. It’s about ensuring that if you’re not around, the people you love aren’t forced into financial stress, housing instability, or lost opportunities. Here’s the simple mental model to keep:

Dependents × Duration × Annual Support = Coverage Amount
Then subtract what you already have.

And revisit this every 3–5 years—or when major life events happen: a baby, a home purchase, a job change, a divorce. Insurance isn’t about predicting tragedy. It’s about removing the uncertainty that it could leave behind. You don’t need to over-insure. You just need to protect the plan.