Budget for insurance

Dear Mr. Tan,

I earn $3,000 a month. An insurance agent recommended a life insurance policy plan for $350. When I asked for term insurance (after reading your blog), I was given a combination that cost $150. Is this too much?

REPLY

I suggest that you set aside 2% of your monthly income (i.e. $60) for your insurance coverage (i.e term and medical insurance) and save 10% to 15% of your monthly income in a low cost investment fund.

If you save $300 a month and invest it over 30 years to earn 5% per annum, you will get $240,000. (If you save $300 + $60 in a life insurance policy, you are likely to get less than $200,000 at the end of 30 years).

You should tell the insurance agent that your budget is $60 a month for the insurance coverage. Ask them to recommend the best combination of term and medical insurance for this monthly budget. You can ask three agents to give you their recommendation.

As the agent does not earn much by selling you the low cost coverage, you should not expect them to see you at your home. Give them a call and ask them to send their recommendation to you through an e-mail. You can discuss with them over the telephone.