Pillars of personal finance
Pillars of personal finance
Planner Bee was designed around the three core pillars of financial planning.
Here we break down these concepts, one pillar at a time.
Determining your insurance needs
Holistic financial planning should always include insurance, and this applies to everyone, regardless of financial status.
Most people look at insurance to be prepared for unforeseen medical situations. While some might argue that they have the money to protect themselves, but it would be silly keeping that much liquidity that could go into investing (we get into this more in the third pillar, #GROW MONEY).
Further, how much money to set aside is a moving target with medical inflation. Global medical inflation has hit 9.7%, and the numbers are even higher within Singapore.
This does not mean that you should purchase insurance for every single risk in your life. Purchase insurance only for risks that you cannot afford, or that do not make sense to absorb. Often, these tend to be medical costs, loss of income, and the cost of long term disability.
We created this handy insurance map to help you navigate these scenarios.
1. Life insurance
Life insurance provides a lump sum of money to the family upon the insured person’s death. It can help their family with the sudden loss of their income, and to repay mortgage loans in their name.
Calculation: Monthly family expenses x 10 years + total outstanding debt – existing savings – existing investments
Recommendation:
Planner Bee uses household expenses for this calculation. For most people, getting sufficiently covered for every aspect is challenging, so we believe in guiding people towards getting sufficient coverage across different areas to sustain their lifestyle, at the very least.
While this will not guarantee that the sum from insurance is sufficient to sustain your lifestyle, it gives you a reasonable period of time to find alternatives.
- Sum to insure: The general rule is to replace 10 years of your income or household expenses, plus any outstanding loans.
- Period to stay insured: It is recommended to stay insured till you reach retirement. As we move into later stages of life, the coverage required is likely to go down as we have less debt, or fewer dependents to worry about. Hence for some people, they choose to opt out of such coverage in their retirement years. Others may opt to be covered for their entire lifetime for legacy planning purposes.
2. Long term disability / Total permanent disability insurance
Long term disability could be caused by accidents or illnesses. And with life expectancy increasing, we also need to consider that additional time could be spent in poor health and reduced income.
Calculation: Monthly family expenses x 10 years + outstanding debt
Note: We don’t include your existing savings and investments because we assume these assets are directed towards other goals or retirement.
Recommendation: We recommend a 10-year calculation of your expenses to mitigate this. In Singapore, the average period spent in poor health is 10.6 years, based on this study.
3. Critical illness insurance
This type of insurance provides a lump sum of money upon diagnosis of one of the conditions it covers. This money should be used to replace the loss of income during your recovery period. In Singapore, there is a fixed list of critical illness definitions that life insurers need to follow and most will also provide additional coverage for conditions beyond the list.
Calculation: Annual income x 5 years
Recommendation: The period of recovery from a critical illness is 5 years on average. Hence, it is recommended to have an income source amounting to at least 5 years’ worth of your income.
4. Early critical illness insurance
This type of insurance provides a lump sum of money upon diagnosis of one of the conditions it covers. This money should be used to replace the loss of income during the recovery period.
Calculation: Annual income x 2 years
Recommendation: The period of recovery from an early stage critical illness varies from person to person. It is recommended to have an income source amounting to at least 2 years’ worth of your income.
5. Medical insurance
People say this section is confusing, and we get why. The structure of medical insurance coverage can be incredibly nuanced, so we have categorised these into scenarios to illustrate.
A proper financial plan will include hospitalisation insurance coverage at the very least, as bill sizes can run in the tens of thousands — or even millions.
Sudden hospitalisation can wipe out savings, bankrupt families and derail them from their long term goals.
In comparison, accident insurance and outpatient medical insurance plans are optional to some as bills are usually smaller.
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Frequently asked questions
How much insurance do I actually need?
Only insure risks you cannot afford to absorb yourself, typically large medical costs, loss of income, and long-term disability. There’s no need to buy cover for every small risk. This guide breaks the essentials into life, disability, critical illness, and medical insurance so you can size each one.
How much life insurance coverage should I have in Singapore?
The general rule is to cover 10 years of your income or household expenses, plus any outstanding loans, minus existing savings and investments. Planner Bee bases this on household expenses so your family can sustain their lifestyle and have a reasonable window to adjust after a loss of income.
How long should I stay covered by life insurance?
Most people stay insured until retirement, since coverage needs usually fall as debts are cleared and dependants become financially independent. Some opt out in their retirement years, while others keep lifetime cover for legacy planning.
What’s the difference between total permanent disability and critical illness insurance?
Total permanent disability (TPD) cover replaces income if an accident or illness leaves you permanently unable to work, sized at roughly 10 years of family expenses plus outstanding debt. Critical illness (CI) pays a lump sum on diagnosis of a covered condition to replace income during recovery. They address different scenarios and are best held together rather than as substitutes.
How much critical illness coverage do I need?
Aim for around 5 years of your annual income, since the average recovery period from a critical illness in Singapore is about five years. This gives you an income replacement buffer while you focus on treatment and recovery rather than returning to work early.
What is early critical illness insurance and how much do I need?
Early CI cover pays out on diagnosis of an early- or intermediate-stage condition, when treatment often begins and costs mount. Because recovery time varies widely, a common benchmark is about 2 years of annual income. It complements, rather than replaces, standard critical illness cover, which pays at later stages.
Do I really need hospitalisation insurance if I have savings?
Yes, hospitalisation cover is the one plan nearly everyone should have, because bills can run into the tens of thousands or more and a single hospitalisation can wipe out savings. Self-funding is rarely sensible given medical inflation, which runs high in Singapore. Keeping that much cash idle also means missing out on investment growth.
Is accident or outpatient insurance necessary?
These are optional for many people, since accident and outpatient bills tend to be smaller and more manageable to pay out of pocket. Hospitalisation cover should come first. Add accident or outpatient plans only if the added protection fits your budget and circumstances.