Singaporean women have managed to do what women elsewhere in the world have failed to do – that is, to close the pay gap divide. Men and women are equal in the Singaporean workplace, yet when it comes to life insurance, many families still take most of their life insurance coverage out on the male head of the household.  Assuming both spouses are bringing home fairly equal pay, the one policy practice could cost you money. Should you get a life insurance policy and, if yes, how large should it be?

Life Insurance in Singapore

More than 50% of families do not own life insurance policies. Life insurance is a contract whereby an insured pays a premium to an insurer in exchange for the cash value of the policy upon the death or terminal illness of the policy holder. If a parent were to die, an insurance policy provides benefits to the beneficiaries – typically the spouse and children – for a predetermined period. A term may be specified or the benefits could be paid throughout the beneficiaries lifetime.

Why you should get life insurance in Singapore?

Many folks leave life insurance coverage to their employers. These group polices are seldom sufficient on their own to provide for your family if something was to happen to you or your spouse. And, of course, if you change jobs, you will need to change policies. But the real reason your family may be short on life insurance coverage is because you have left the wife uninsured.

Insuring the husband made sense when he earned most of the family income. Many couples continue this practice owing to habit and a lack of education. Even if you stay at home with your children, the expenses of running a household today can be high in the absence of a parent. Your husband will need to manage childcare, housekeeping, doctor’s visits, and transportation to and from school. If you were to give yourself a salary as a full time stay-at-home mom, how much would it be?

What Kind Of Insurance Do You Need?

How much do I need?

It is tempting to take out a large sum in life insurance in Singapore, but how much do you really need? Make a list of your current and future expenses. Remember to include your own salary. According to Indeed.com, a homemaker’s salary is $51,000 per year. Let’s look at PayScale.com for the true replacement cost. A homemaker/homecare aid makes about $29,000 a year. Ten years at home with toddlers could eat up about two-thirds of your $500K insurance policy. For a more exact calculation, try a needs estimator.

Most households will readily concede that they need both incomes. Assuming expenses are split down the middle, besides homecare, your expenses will include a mortgage, other loans (car, student loans), groceries, general household expenses, insurance policies, and so on. Future expenses include children’s college education, weddings, and so on.

Up to this point, we have only included necessary expenses. You will also want to include a travel budget. After replacing you, you may have $200K left of the policy to cover all other expenses. So clearly, $500K does not go very far for a family. We cannot forget to include retirement savings. The surviving spouse is likely to live much longer than his parents and a big chunk of money will need to be allocated to retirement savings.

Buying life insurance in Singapore

Life insurance in Singapore costs can be as low as several hundred dollars a year. How much should you buy? The rule of thumb in the insurance industry is to buy a policy that is 15 times your annual income. So we are already at $765,000 (at 51K per annum). Some would add outstanding debts to that figure, which could easily bring you over the $1 million mark.

You can get even more out of your insurance premiums if you choose a permanent life insurance product. The lowest risk insurance policy is term insurance. In exchange for fixed premiums paid monthly, quarterly or annually, your beneficiaries – your husband and children – will receive a fixed payout for a set number of years. With term insurance, the amount of your payout is guaranteed.

Permanent insurance provides the opportunity to earn higher returns but introduces some level of risk. Many life insurance policies – including the popular investment-linked policies – can increase the value of your insurance policy by allowing your premiums to earn returns on savings and investments. The premium is allocated between the insurance, and savings or investment component. The returns on some of these products are not guaranteed, and thus you could end up with less than your surrender value at maturity.  It is worthwhile to take the time to familiarise yourself with the types of life insurance.

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Shopping for life insurance in Singapore

When determining the potential return of your insurance policy, review the insurer’s past performance over the last 5 to 10 years, and its recent annual rate of return, against policies with similar features. Remember, past performance is no indication of future performance. However, you can get some indication of how a particular insurance company manages its insurance investment products. In the same way some mutual fund companies consistently outperform their competitors, the track record of insurance companies varies.

Many factors in an insurance policy’s valuation can change.  The value of a life insurance policy is based on the mortality rate and interest rate, and both can change. The expenses and commissions also must be considered. A policy may, in fact, not provide a positive return in its first few years owing to commissions and other charges. The mortality rate is based on the average life expectancy of a group of people. Since people are living longer, the mortality rate in your insurance policy will be different from that in your father’s policy, and it may change over the length of your policy.

Most insurance companies in Singapore will invest your money conservatively in so-called ‘safe’ investments, such as bonds, stocks, and mortgages. But even an A-rated fund can take on too much risk. If your policy had been invested in mortgages or REITs during the 2008 financial crisis fuelled by mortgage-backed securities (MBS) – a security made up of a bundle of subprime mortgages – the value of your policy would have declined. Insurance companies are under less stringent regulations than banks and thus are able to buy securities with higher yields and higher risks yet still have an A rating from a credit rating agencies.

This year, shopping for life insurance in Singapore has become easier with the launch of the website compareFIRST.  The Monetary Authority of Singapore, Consumers Association of Singapore and Singapore Life Insurance Association have partnered to help you the consumer make more informed decisions when shopping for life insurance in Singapore.

Things to Consider When Purchasing Your Insurance Policies

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C.E.O @ The New Savvy
Anna Haotanto is passionate about finance, education, women empowerment and children’s issues. Anna has been featured in CNBC, Forbes, The Straits Times, Business Insider, INC and The Peak Singapore. She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen). Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).