Is Your Insurance Coverage Enough?

Recently, one of my cousins asked my opinion on whether she should cancel her life policy or not? She is married with 2 young children. This is really a one-million-dollar question. If she asks her insurance agent, I guarantee her agent will advise her not to cancel but top up some more because her life is invaluable. My experience tells me that her agent might not help her on calculating insurance need because her agent might not know how to or don’t want to help as, in her agent’s mind, commission earning come first. So, the only way she can do is to learn how to calculate her insurance need and act accordingly.



Life is full of uncertainty. None of us knows what will happen next day or even next minute. It is correct that life is invaluable. But, the fact is, we have limited resources to meet endless needs. That is the reason why planning, including insurance planning, is necessary.

So, how to calculate your insurance need? Following information is required for clearer picture:

Info 1: To get the amount of total liabilities, both short and long term, you are having. This is what you currently owe. Assume these liabilities need to be settled immediately if you are no longer around.

Info 2: To forecast your funeral expenses. At the current high cost regime, funeral cost may be a serious expense to your survivals.

Info 3: To forecast future family expenses, excluding you. In this step, you need to estimate the life expectancy of your spouse as well as the expenses on different stage of life. For example, your spouse’s family expenses might be high as children are still young but become less once they are growing older and become independent.

Info 4: To estimation your children education fund requirement.

Info 5: To estimate other needs, if any.

Please bear in mind that inflation need to taken into consideration within the calculation period for Info 3, 4 and 5.

Info 6: To study all of your current financial resources available, including all your existing insurance coverage.

Info 7: Estimate your financial resources growth

Now, you can start to calculate your y-o-y available resources after all debts and funeral expenses with your spouse’s future income versus expenses until the end of his/her life expectancy. If the balance shows negative, this means your insurance coverage is not enough. However, as we have limited resources, by increasing your insurance coverage, your insurance premium payment should not exceed 10% of your take home income.

Now, take a step ahead to create a peace of mind.