Protection Gap in Singapore Remains Wide

NTU Study finds families in Singapore are financially ill-prepared for loss of breadwinner

The loss of a loved one can trigger an emotional rollercoaster ride.

It can also bring an unexpected financial toll on those who are left behind.The bad news is that the majority of Singaporeans are not adequately protecting their dependants from the ensuing financial burden in the event of their untimely death.

The sad news is that many don’t feel the urgency to do so.These were the findings in two separate projects commissioned by the Life Insurance Association of Singapore (LIA).

These findings are in line with the harsh reality that death claim payouts in Singapore have averaged around $37,000 in recent years, significantly below what is deemed to be sufficient to ensure that families can continue a similar living standard in the event their breadwinner passes on.

Key Findings Of those polled

• Two-thirds had some form of insurance, of which 26 per cent had no idea how much they are covered for

• Almost half (46 per cent) think they are well-covered in terms of sufficient coverage for their dependants

• There is a high level of indifference about getting additional coverage among those who are in a more vulnerable situation

- Of those who do not think they are well covered (54 per cent), as many as 70per cent of them said that they have no intent to purchase higher coverage

- Of those who do not own a policy (29 per cent), some 73 per cent of respondents said they had no plans to buy insurance

Reasons For Non-ownership

Among non-owners, half of whom were from the lower income group (household incomeof less than $3,000), price was the key deterrent (49 per cent).

While some said they did not have the means to purchase life insurance, others said it took a back seat to “more urgent necessities” such as a car and credit card loans.

Further analysis of the results revealed that there was the lack of understanding of how much is needed to pay for premiums to ensure adequate coverage. One should be prepared to pay 10 to 20 per cent of their income towards monthly premiums.“This is a silver lining,” said LIA’s Deputy President Richard Shermon, who had overseen the project. “At least we can address the affordability factor through better education and quality financial advice.”

Methodology

The study took into account the following considerations:
• The resident working population aged 20 to 64 using the average age to be around40;
• The household composition using the average household size of 3.4 members comprising children, adults and senior citizens;
• The household income using the average monthly / annual income per household at$5,400 / $64,800;
• The expenditure per household using the average monthly / annual expenditure perhousehold at $3,244 / $40,819 (accounting for inflation)

The degree of under-insurance was estimated from the perspective of an average working adult. Firstly, his protection needs were assessed, defining this as the lumpsum required on his premature death to satisfy the following objectives:

To pay the funeral expense and all outstanding debts attributable to the individual and to maintain the current living standards of the individual’s dependants for as long as they may be expected to remain dependent on the individual.

Calculating Protection Needs and Gaps

The study determined that the working adult, on average, is estimated to have a protection needs requirement of $480,636 in order to satisfy the objectives set out above.Currently, the working adult is estimated to own, on an average, only $118,639 of life insurance (total of personal life insurance, group life insurance, and dependant protection scheme).

The protection needs of the average working adult translate into 11.3 times the average annual income of $42,427.In reality, however, the estimated existing cover of $118,639 is equivalent to only 2.8 times this average annual income, or 25 per cent of the average working adult’s protection needs.

This means, on average, the Singapore working adult is under-insured by an amount of $361,997 or 75 per cent of the protection requirement.Taken as a whole, the working population in Singapore is under-insured by a whopping $578 billion!