Insurance Planning [End 2009] - Life Insurance

It’s end of the year and there are so many things to do such as setting personal resolution for the next year, reviewing insurance coverage, determining the amount to contribute for SRS, expense budgeting, and the list goes on and on….

Anyway, I’ve decided to do a quick review of my existing insurance coverage vis-à-vis what I actually need. This is one thing at the back of my head but didn't had time to get down to it. I noticed that I have been paying quite a lot in insurance but never really sit down and think through what I really need.


MY CURRENT LIFE COVERAGE

Life Insurance :
- GE Life : $50k (Paying $50 per month)
- AIA Prime Life : $50k (Paying $100 per month)
- AIA ILP : $50k (Paying $100 per month)
- HSBC ILP : $60k (Paying $160 per month)
- NTUC (Term) : $300k (Paying $50 per month) – Cover till 65 years old.
- DPS (CPF insurance) : $46k
TOTAL LIFE INSURANCE : $556K (Total Monthly Premium : $462)


HOW MUCH COVERAGE DO I NEED?

My dependents :

(1) My Mother : $110,000

- I have 2 other siblings, so my mother’s expenses is shared out by 3 persons. $500 x 12 months = $6,000 annually.
- Mum is 58 years old. Assuming her mortality age is 85. Left : 27 year left.
- Assuming 3% inflation.
- Thus, amount required PV = $110,000
[Financial calculator : N=27, PMT=$6,000, FV=$0, i/y=3%]

(2) My Daughter’s Education : $200,000 (for overseas education)

- $200,000 at present value, that is, S$330,000 when she is 17 years old.
- Assuming 3% inflation.
- Thus, amount required = $200,000


(3) My Daughter’s Living Expenses : $174,000

- [$500 (maid to help take care of her) + $300 (food, transport) + $300 (education, textbooks)] x 12 months = $13,200 annually.
- For the next 17 years
- Assuming 3% inflation.
- PV = $174,000
[Financial calculator : N=17, PMT=$13,200, FV=$0, i/y=3%]

(4) My Final Expense : $20,000 (simple funeral)

Total Death Insurance Coverage :
= $110,000 + $330,000 + $174,000 + $20,000
= $634,000


KEY ASSUMPTIONS
I am also assuming that my husband can continue working and save for his own retirement, and my daughter’s expenses will be taken care of by my insurance payout. My current housing loans will also be covered by mortgage insurance that I took with HDB.


ASSESSMENT
My current assets is about $400k (in cash and CPF). Looking at the above, I’ll probably only require $234k (=$634k - $400k) in life insurance. It certainly looks like I am grossly over-insured. Perhaps I should cancel some of my policies and switch to level term life insurance to free up some cash... Hmmm...