Singapore Guide · Financial Planning Basics

The Basic Financial Planning Guide launched in 2023 by MAS and the industry (ABS, AFAS and LIA) recommends setting aside at least 3 to 6 months' worth of expenses; people with irregular income (such as freelancers) may keep about 12 months. Expenses should include loan repayments, credit card bills, insurance premiums and taxes. An emergency fund should be readily accessible, for example in savings accounts or Singapore Savings Bonds (SSBs), rather than in the stock market; CPF savings have specific purposes and cannot serve as an emergency fund.

Source: MAS (Basic Financial Planning Guide, October 2023) (website: mas.gov.sg)

The Guide's rule of thumb is 9 times annual income. It is based on the Life Insurance Association, Singapore (LIA) Protection Gap Study: in the event of death or permanent disability, dependants (and the insured, for permanent disability) are estimated to need about 9 times annual income to cover expenses, clear outstanding debts and maintain a reasonable lifestyle for a period of time. People with more dependants or higher debts may want more coverage, and others less. CPF members with valid working contributions are generally covered automatically by the Dependants' Protection Scheme (DPS) for basic protection.

Source: MAS (Consumer FAQs on Basic Financial Planning Guide); LIA (Protection Gap Study 2022) (website: mas.gov.sg, lia.org.sg)

The rule of thumb is 4 times annual income. It is based on the LIA Protection Gap Study's assumption of a 5-year recovery period after a major illness before returning to work: family expenses and debt repayments during that period are estimated at about 4 times annual income, taking into account lifestyle adjustments due to reduced earning capacity. This is a reference for standard critical illness coverage and can be adjusted to individual circumstances.

Source: MAS (Consumer FAQs on Basic Financial Planning Guide); LIA (Protection Gap Study 2022) (website: mas.gov.sg, lia.org.sg)

The Basic Financial Planning Guide suggests spending at most 15% of income on insurance protection and investing at least 10% of income for retirement and other financial goals, both based on income after CPF contributions. Bundled products with both investment and protection elements (such as whole life insurance) may exceed 15%. The Guide also notes that term insurance is a cost-effective way to get protection, especially when lower premiums are locked in at a younger age.

Source: MAS (Basic Financial Planning Guide, October 2023) (website: mas.gov.sg)

You can follow the approach of the LIA Protection Gap Study: the mortality protection gap is the amount dependants need (to cover expenses, clear debts and maintain a reasonable lifestyle) less existing savings (including CPF and other savings) and existing death coverage; the critical illness gap is the expenses and repayments needed during an assumed 5-year recovery period, less existing critical illness coverage. LIA's 2022 study found that economically active people had average death coverage of about 3.6 times annual income and critical illness coverage of about 2.1 times, with an overall mortality protection gap of 21% and a critical illness protection gap of 74%. This website's financial planner lists reference coverage based on the rules of thumb and compares it with the existing coverage you enter.

Source: LIA (Protection Gap Study 2022, September 2023) (website: lia.org.sg)