CALCULATORS / INSURANCE

Insurance Needs Calculator

This calculator helps you to figure how the total insurance coverage you need, and whether you’re adequately insured.

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First let's calculate the total amount of insurance you need

Amount of insurance you need

How much insurance do you already have?

The additional insurance coverage you need

Assumptions

Employees with regular income stream are recommended to have at least 6 months of their needs in liquid cash, while self-employed persons to have 12 months of their needs.

Life insurance

The recommended sum is derived by multiplying your annual household expenses by the period of support you've planned for your dependents. We add outstanding debt, minus existing savings and investments. The education fund is also added to this sum if indicated.

Disability insurance

The recommended sum is 10 times of your annual household expenses.

Critical illness insurance

The recommended sum is 5 times of your current annual income.

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Emergency
Investment
Mortgage
Retirement

When Do You Need to Buy Insurance?

Insurance contracts provide you with a sum of money in the event of an unfortunate situation, in exchange for smaller sums paid before it occurs, called premiums.

But how do you know when you should get insured or if it’s just a waste of your money?

Figure out the Cost of Premiums vs Your Cost of Risk

The price to pay for the insurance premiums must justify the risk that you are eliminating from your life. We buy insurance to cover ourselves from potentially large medical bills.

Weigh the Opportunity Cost of the Sum

Assume you have that $500,000 lying around and you would be able to pay for the medical bills with that liquid cash. Since such medical emergencies are unforeseen and sudden, you can’t invest it into a longer term investment vehicle that could earn you higher returns and will have to keep it liquid in your bank account.

Then the question is, would you want to keep it highly liquid for such sudden unforeseen bills and earn little to no interest? The savings account interest rates could be as low as 0.05%.

Or would you prefer to have it invested in a low risk investment vehicle that earns 3% per year, while you pay an insurance premium of $600 per year (0.12%), and have the money earn an additional 2.88% interest?

Consider the Size of the Risk

Decide if your risk factor is one you can personally take on.

For instance, some mobile phone insurance policies cover your device up to $1,000. But the benefit of the coverage also depletes as the phone is closer to its average two-year lifespan. For a premium of about $120, the cost is 12% and seems rather high in comparison to 0.12% for the health insurance.

It’s all about understanding how big a risk is to you and whether you are willing to pay to be covered for that risk.

Planning for Your Legacy

We may plan for our retirement with certain assumptions in mind, such as our planned retirement age and expected longevity, but we cannot be sure that things will not change.

An annuity product provides us with an assurance that we have a lifelong stream of income. At the same time, if we do pass on earlier than expected, part of the unused funds can be gifted to our family. A legacy plan on the other hand could also help to provide a $1 to $5 leverage on your savings, creating an after-life asset that is multiplied by 5 times.

Insurance coverage is part of holistic financial planning, and we should always consider the affordability of the premiums and the amount to insure, according to our incomes. Check out this article to know how much insurance is enough.