Income & Budget vs. Insurance Expenditure – Prioritising What’s Important
A big question most Singaporeans have about insurance is this – how much insurance should I have?
To answer this question you need to look at your budget first. Because without factoring your income and expenses to find out how much you can save each month you won’t know what insurance options are available to you (or what expenses you need to cut to make sure you’ve got enough coverage).
Let’s look at how a financial planner would review your situation:
Step #1 Determine Your Priorities
Your financial planner will want to know your financial goals such as retirement, saving for a house, etc.
If you’re saving up to buy a 55’ HD TV, a 2014 BMW 316i and a down payment for a new home, your financial advisor will probably tell you that your home purchase is the financial goal you should prioritise.
If your financial goal is to save up $50,000 for the down payment to purchase a home and you currently have $10,000 saved up – your financial planner will work with you to come up with a financial plan that’ll help you come up with the other $40,000.
Step #2 Determine Your Current Financial Position
From your answers, your financial planner will review your existing insurance policies and assets to identify any existing “gaps” in your financial plan.
A father of two only has $50,000 in insurance coverage, which is grossly insufficient if he were to pass away.
Assuming that the father’s average household spending is $1,500 a month, this $50,000 death benefit would only last his family for 33 months!
That’s why your financial planner will help you identify such financial gaps so you can make budget adjustments that free up the cash to fix them.
Step #3 Analyse and Identify Areas for Improvement
From your financial goal(s), your financial planner will help determine different ways for you to reach your goals within your given timeframe.
Your financial planner will help you do a “cashflow analysis” to break down your expenses to look for areas that you can cut down on so you can free up more cash for insurance.
See full story at blog.moneysmart.sg