Bridging the Protection Gap After You Land Your First Job

Key Takeaways:

• 1. As you reach different milestones in life, your needs change. These are opportunities to examine your protection gap and consider what insurance plans you need to get or update.
• 2. From getting a job for the first time to starting a family to retiring, there are insurance plans available to meet your needs at every stage. Find out what these are and how they can benefit you.
• 3. Bridging the protection gap is essential to living prepared, recovering from loss, and minimizing risk for you and your loved ones.

Life Stage: Joining the workforce

As a young person who just started working, below are a few examples of potential protection instruments you may want to think about.

What is the protection gap?

The protection gap is not a standardised or regulated term. It is generally defined as the difference between the amount of capital you may need versus the amount you have available when an unfortunate event occurs.

Examples of such events include critical illnesses, death, disability, retrenchment, or retirement. Singapore residents have a mortality protection gap of 2.1x of annual income and a critical illness protection gap of 3.1x of annual income¹ (Life Insurance Association of Singapore, 2017).

How do I calculate my protection gap?

Your protection gap, can be calculated as follows:

From the date of the unfortunate event occurring, the protection gap can be expressed as such:

Protection Gap = [The resources you have available] – [All future resources and expenses needed]

If this number is positive or zero, you may be sufficiently insured. However, if this number is negative, you might have a protection gap.

As you reach different milestones in life, it is a good practice to review your protection gap diligently. One major milestone is joining the workforce.

Should I get life insurance in my 20s?

Life insurance typically pays out a lump sum to your designated nominee in the event of death. Many life insurance plans also cover partial pay-outs for non-fatal but debilitating events such as disability or certain critical illnesses.

If you are in your 20s, it may be tempting to put purchasing life insurance on the back burner as you have no dependents. However, it may be worth considering life insurance earlier in life for the following reasons:

• 1. Life insurance may be more affordable if you begin paying for it in your 20s as compared to starting in your 30s when you start having dependents.
• 2. Beyond death, life insurance could also cover disabilities and critical illnesses. Some types of disabilities (e.g. becoming blind) may significantly cut off many career paths and future earnings.
• 3. If you have parents or even siblings who are dependent on you for financial support and have little savings of their own, a sudden death may mean a less than comfortable future for them.

Do I need health and medical insurance in Singapore?

Health insurance is generally thought to be essential regardless of age. It may cover all or part of your medical costs in the event of an illness. If you are transitioning from a policy purchased by your parents, read the conditions surrounding pre-existing conditions carefully.

Find out how else you can manage sudden medical expenses.

Is personal accident insurance worth it?

Personal accident insurance provides coverage against accidental injuries. You may be reimbursed or be paid a lump sum, depending on your policy and injury. If your career and nature of work have occupational safety risks, personal accident insurance is something you may want to seriously consider.

Review your protection gap during major transitions in your lifestyle and financial commitments

As you move from one stage of life to the next, remember to review your insurance plans and examine your protection gap. Having the right insurance plans in place does not guarantee a complete recovery from loss or ensure financial stability. However, it does provide a buffer to recover from financial loss and lengthens your runway to make long-term plans. Consider what needs to change to accommodate the changes in your life and discuss them with a trusted advisor.

Disclaimers

References

1: Life Insurance Association of Singapore. (2017). LIA Singapore Protection Gap Study. Singapore: Life Insurance Association of Singapore.

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