How much Insurance coverage do I need?

This is a frequent question by many to their insurance agents. The problem with this question is that only you will know the answer. The insurance agent can at most only guide you or help you to find out the insurance coverage that you need. This requires you to be honest with him and vice versa.

I personally feel that there is really no "one size fits all" insurance package for everyone. This is simply because everybody's needs differs based on circumstances and scenarios. Let me attempt to give you 4 scenarios to illustrate how insurance needs differs from case to case. In all these case scenarios, let us take a 25 year old male (let's just call him David) who has just started work with annual pay of $50,000.

Scenario #1
David is single and stays with his parents. His parents are filthy rich and will not need a single cent from him for the rest of their lives. How much insurance should David buy?

My take on this is that David probably does not require any life insurance or death benefits. He has no dependents (unless you call his rich parents dependents!) The only reason he should buy life insurance is just for the sake of leaving some money for his parents. The only worry he should have is being disabled for life and not having an income. So perhaps he should just go for disability income and maybe a comprehensive hospitalisation plan. (Assuming that David is independent and does not want to rely on his parents should he become disabled)

Scenario #2
David is newly wed. Parents are not well to do and require monthly sum from him to survive. Wife is working. Just bought a new HDB.

My take on this is that David will have to buy life insurance so that should he die, his dependents (parents) will have enough to survive. How much he should buy is how much and for how long he would want his parents to be able to survive before coping with their loss. Let's say his parents only require $1000 per month. He can choose for a plan that gives death benefit of say 20 years. That is $240,000. What about his wife? She is working.... HDB is protected under Home Protection Scheme. So unless his wife earns too little to get along, David most probably does not "need" to give his wife anything for her to survive.

Scenario #3
Same as scenario #2 except that David also has a newborn baby.

This changes everything. Now David will have to buy insurance so that in the event he dies, his child will be well taken care of for the next 10 to 20 years. This will also have to take into account the amount his wife earns and whether she earns enough to support the baby on her own....What if she stops working or needs to finance a maid should she be working... All this needs to be considered.

Scenario #4
Same as scenario #3 except for the fact that David had 1 year earlier inherited $20 million dollars from a distant uncle. His wife also had inherited $20 million from a distant aunt.

Does David still need any insurance? Put this insurance in the bank with 1% interest and his dependents already have $200,000 every year! Unless his dependents require more than $200,000 a year to survive, I don't think David needs any insurance. If he is afraid of costly hospital bills or being disabled for life.. then maybe he can buy some insurance, but seriously...$20million ought to get anyone by through life regardless of whatever illness or disability.

Conclusion: How much insurance coverage one needs and the type of insurance one needs differs from one person to another. It all depends on the circumstance and stage of life you are in, who your dependents are, etc etc. There is no standard solution to it.