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Pyramid Breakdown - What does it all mean?

Finally! The magic question is about to be answered.

Except that there is no magic answer - The insurance that one needs varies from person to person, and is influenced by their individual financial situation and accompanying risk factors. (Like what their Mother-In-Law thinks they should buy, etc).

But no, we are not going to shirk from our duty and slink away without giving an answer, we just want to make it clear that there is no one size fits all solution.

Let's understand the scope of the answer here: Rather than specify which type of insurance plans you need, we have generalized an average Singaporean's insurance requirements into a financial pyramid. It shows the different types of cover that he should obtain in ascending order of importance.

Tah Dah: Our modestly termed: Clearly Surely's Financial Pyramid of Needs
Pyramid

This pyramid shows the hierarchy of needs for an average Singaporean who is:

  • Of working age from 21-64
  • May have financial dependants
  • Does not expect to win the lottery anytime soon (hey, you never know)
  • Does not have a 7 figure trust fund waiting for him

Lets explain (or climb) the pyramid to understand it properly - these are our 3 guiding principles.

1. Endless wants, with limited resources: Priorities are the key.

Fully paid-for stay at luxurious room in a private hospital, well compensated for being disabled and a huge fortune to be bestowed upon your family are some benefits that insurance may provide for you IF you buy excessive amount of insurance.

Like all good things in life, you will have to pay for it.
Unfortunately for many of us, money IS an issue and hence we need to prioritize our needs and wants.

2. A strong foundation of (financial) security comes first.

The logic behind determining what insurance cover to obtain first: Obtain cover for the events that will hit you the hardest within the shortest amount of time.

Once that is taken care of, we proceed to build upon the foundation to cover for events that have the next hardest impact and so on.

Akin to building a pyramid - we are pretty sure the Egyptians (or aliens) laid a strong foundation before building their way to the top.

3. Centre of attraction: You, yourself, and certainly not Irene.

'If there are children, or elderly people seated next to you, first put on your own oxygen mask before helping them.'
This well-known pre-flight announcement holds true here - you must secure your own survival before you can help your loved ones.

Many times, we may put our children's needs before our own. ("Ah boy is starting primary school next year, we need to start saving for his PhD") But that is erroneous because life may take an unexpected turn and you may well be out of pocket because of a serious illness, accident, or even death - how is Ah boy's education going to be funded then?

With that out of the way, let's take a closer look at the pyramid and explain why we designed it as such.