Many of our articles mention the rough rule that total insurance premiums should not exceed around a tenth of income. This article looks specifically at the budget: where that figure comes from, how far it applies, and how to divide the money within it as intelligently as possible.
Why around a tenth of income?
The logic behind it is the balance of the whole financial plan. Income has to cover essential expenses, saving and investing, and present-day enjoyment. If premiums take too large a share, they start squeezing savings and quality of life until, one day, that becomes the reason a policy is abandoned halfway — far more damaging than starting with a right-sized budget. Around ten percent is the point at which most people can keep paying throughout the contract without strain. Note that it is a recommended ceiling, not a target to reach. If you use less and your cover is complete, better still.
How to divide the budget: the order matters more than the total
Suppose the budget is 50,000 baht a year. The next question is what comes first. The recommended order for most people:
- Health insurance — always the first slice, because the risk occurs often and hits immediately.
- Life / disability cover — according to your real obligations. Term cover gives a high sum insured within a limited budget.
- Critical illness — once the first two are in place and budget remains.
- The savings or annuity portion — the top layer, added once the protection foundation is solid.
The classic mistake is doing it in reverse: putting most of the budget into an expensive savings-type plan and leaving the remainder for health and life cover, which are the real reason for having insurance at all.
Adjusting for life stage and income
One-tenth is not one-size-fits-all. Some adjustments by context:
- Low income or just starting work — 3–5% may be the place to start, focusing on health and accident cover first, which is better than waiting until you are "ready," a day that often never comes.
- Peak obligations (children, a mortgage) — it may move towards 10–15% if necessary, using term cover to keep the premium efficient relative to the sum insured.
- High income — the percentage may fall while the amount rises, and the weight usually shifts towards tax planning and passing assets on.
- Close to retirement — the budget should go to maintaining the existing health plan and the annuity, rather than opening new cover.
Don't forget the tax deduction in the equation
Several kinds of premium are deductible within the current limits and conditions [check the latest information]. For someone in a high tax bracket, the tax saved makes the real cost of the premium lower than the amount paid — pay 100,000 in premiums and receive 20,000 back in tax, and the real cost is 80,000. This angle sharpens the decision. But, as always: buy for the protection you need first; the tax benefit helps the decision, it is not the main reason.
A three-question self-check
One: what percentage of your income do your total premiums come to right now? (Many people have never added them up.) Two: if income fell by a quarter next year, could you still pay? Three: does the order of your budget match the order of your risks, or is it reversed? Answer those three and your insurance budget rests on solid ground. If you would like help totalling it up and reordering it, message us on LINE any time — no charge.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.