Are you over insured or are you under insured?
You are the judge whether if you are adequately covered. There are two methods which you may need to consider. Which method depends on the angle where your priorities lie? You may be concerned from the angle of
· Annual Expenditure (Ex) or
· Annual income (In).
Your financial advisor will be able to assist. However, if you do not have one, you may consider the following equation
Potential loss = ((Ex) or (In)) * time horizon * inflation
You may use the Future Value (FV) formula from Microsoft Excel to generate the result.
So for e.g. your monthly expenses is S$ 1,000 per month or S$ 18,000 per annum, potential loss to cover your dependants for a time horizon is 10 years, at an inflation rate of 4.5% (Apr 2011), the potential loss works out to ...
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