The role of life insurance is to transfer the financial risk of a death event, often termed as “premature death” or “dying too early,” to an insurance company. Without life insurance, this financial burden could be too heavy for a family to bear.

What are these financial risks? They typically include:

1. Providing a continuous income for dependents, such as children or ageing parents.
2. Providing the cost of education for children.
3. Repaying mortgage and personal loans to avoid burdening the family.
4. Legacy gifting to beneficiaries, such as children, grandchildren or even philanthropy gifts to charity.

So, if these are in your cards, then you need life insurance. But if not, then it is not necessary.

For example, a single working adult with no dependents, whose parents have passed on or are financially independent, has no financial obligation to provide. The same applies to a homemaker or a young child, as there is typically no expectation for them to provide for the family if they predecease.

Examples of people who may or may not need life insurance:

With this context set, let’s address the question: Is it worth getting life insurance if I have substantial savings and investments?

#1 – If You Do Not Need Life Insurance, You Don’t Have to Get It, Regardless of Your Savings and Investments.

This should be fairly obvious. There is no need to spend on life insurance if there is no need for protection. It is better to channel the savings towards other protection needs, such as medical, critical illness, or disability insurance, or to build up your retirement funds. Alternatively, the extra money can go towards things you enjoy, such as shopping or travelling.

Key Takeaways:

1. There is no need to get life insurance if you do not require it.
2. However, if you are getting married or starting a family soon, it is a good idea to review your insurance needs early on.

#2 – You Have Life Insurance Needs but Prefer to Rely on Growing Your Savings and Investments to the Point Where You Can Be Self-Insured.

This is a common observation from anecdotal evidence: Some people believe that insurance is a waste of money, probably because they are still young and healthy and do not foresee any medical crisis or premature death occurring.

Therefore, they prefer to channel their savings towards building their retirement to achieve F.I.R.E. (Financial Independence, Retire Early).

The issues to consider with this mindset are:

Key Takeaways:

1. The key ingredient for investing is TIME. However, life can throw us unexpected challenges at any moment.

2. It is better to be prepared, and insurance need not be expensive when you opt for a term policy.

#3 – You Have Life Insurance Needs but Are Uninsurable and Is Depending on Growing Your Investment to Self-Insure.

This is not exactly the premise of the agenda, but it is worth addressing for those who may be in this situation: What if insurance is impossible due to poor health, and you have to rely on your own assets for protection needs?

One approach is to set aside a sinking fund (the Fund). This is essentially a dedicated savings or investment account to provide for the needs of dependents upon death. Depending on your financial situation, the size of the Fund may vary and could require more regular savings and dedication to grow effectively.

The types of assets in the Fund, considering their risk-return characteristics, should also be evaluated. If the targeted value of the Fund is significantly larger than its current value, a higher risk allocation might be considered for quicker growth, with a gradual shift to more conservative investments upon reaching the target.

While we may not be able to transfer the risk through insurance, we can reduce the risk of premature death by maintaining good health through regular exercise, a balanced diet, quitting smoking, and avoiding high-risk sports.

Key Takeaways:

1. Set up a sinking fund and grow the assets to an adequate level.
2. Consider ways to lower the risk by taking charge of your health and fitness.

#4 – You Have Life Insurance Needs, and Your Savings Are Sufficient to Self-Insure.

Congratulations! You are blessed with substantial financial means, allowing you to practically self-insure. You do not need to buy any life insurance.

For those who wish to bequeath a certain legacy to their children and feel they might need to reduce their retirement spending to give more, you can refer to this article to learn how you can still give more without compromising your retirement lifestyle.

Key Takeaways:

1. You do not need life insurance.
2. If you have legacy needs, consider some insurance strategies to balance between giving and retirement goals.

Putting It Into Perspective

So far, this article has focused on life insurance, specifically referring to death cover. However, there are four other important aspects of protection needs that one should consider to be adequately covered.

At Havend, we focus on helping our clients obtain the right insurance by first conducting a thorough review of their insurance and protection needs. We then use cost-effective solutions, such as term insurance, to ensure they are adequately covered without overpaying for what they do not need.

Speak to us for a review of your insurance needs with our complimentary InsureWell Assessment.

This is an original article written by Eddy Cheong, CEO of Havend.

At Havend, if we are found to have oversold you, we have put in place a Money Back Guarantee (MBG) scheme, so you can trust that we will always prioritise your interests first. Unprecedented in Singapore, learn more about our Money Back Guarantee scheme here.