To begin with, try to read my article about what insurance product do you need.
Now that you are aware of it and would like to inquire, the next question you might ask is how much insurance coverage you need.
There is no specific figure or amount for this answer. There is also no general formula to compute each other’s needs as we have different financial circumstances. What we can do is just follow or take note of the general practice other people are doing to compute their insurance needs.
How Much Insurance Coverage Do You Need?
1. Medical Insurance. This insurance cover’s hospitalisation cost. If you buy this kind of policy, it will give you a capped amount of coverage you can use per year. There is no way we can determine the future illness and hospital cost we can incur. What we can do is to get the best coverage that we our finances can afford. If money is not an issue, go for the one with the biggest coverage for both private and public hospital. Even international coverage if possible to get the best treatment. You can also check the average cost of treatment in your area to give you idea on approximate cost of hospitalisation. Again, if money is not an issue, it’s better to get over insurance in medical than under insured when needed. Most companies offer medical insurance as package upon employment. In case it is not enough, buy a personal medical policy.
2. Critical Illness. This policy gives you lump sum amount upon diagnosis of any illnesses covered. Make sure you get a policy that covers all stages of illnesses, from minor to major. In Singapore, the recommended amount of critical illness coverage is at least 4 times the annual salary. Base on their studies, in worst case of illness, it takes around 4 years before the person can get back to normal life. Imagine you get sick and need to stop working or take time to rest and recover. The payout from this policy will surely help cover the finances alone. This policy is good to partner with a medical insurance.
3. Accident Insurance. If you have medical insurance and death/disability insurance, you can opt for the basic accident coverage only. In the event of accident, this policy gives you 3 coverage: medical treatment, accidental death cover and disability cover. Medical treatment caused by accident is also covered by your medical insurance, especially if you get admitted to hospital. There are some policies though, that cover’s only inpatient treatment for medical plan. Thus, accident outpatient treatment for non serious cases may not be covered. Thus, having a separate accident plan makes sense. For accidental death and disability, you life policy will cover it. In case you get accident plan, it’s another claim.
4. Death/Disability Insurance. For this policy, we are ensuring our life worth. That’s why it’s called life insurance. Imagine if you buy a condo worth PHP 3M, if you take a loan from the bank, they will also require you to have an insurance with PHP 3M value to cover the price of the condo. But how about life insurance, are we insuring ourselves for how much we are worth for? To know how much coverage we need, there are some formulas that are used in financial industries. For some, they use 10x annual salary coverage. In the event something happen to them, at least their family can survive comfortably for the next 10 years. For some, they use the formula base on the beneficiary. For example, if you are a breadwinner with 1 year old child as the youngest. If we need to support our child till age 23, it means we need 22 years for our policy. To compute, that’s annual expenses times 22 years. The answer should be the minimum coverage of the life policy. This is just a basic formula as we didn’t factor out inflation and other future expenses. But at least it will give you idea on how much coverage we need to have for our life policy. There is no right or wrong formula. Choose the one that you are comfortable with.
5. Retirement/Investment Insurance. We are going to retire some day and it’s up to us how to plan for it. There are insurance policies that are designed for this purpose. It’s like putting/investing X amount of money then you have the option to choose what age to retire, how much money you want to receive monthly and how long you want to receive it. With this 3 factor, you can compute how much policy you want base on your future needs. Premiums usually depend on how much you want upon retirement and how young you are when you get the policy. Best advice is to get it if possible while still young.
Our goal is to get the best insurance policy for ourselves. However, it all depends on our finances, on how much we can spare to buy the policy. Getting an insurance is a long term commitment and make sure you have the means to pay for the future premiums. It’s better to have at least coverage than none at all.