How to Set an Insurance Budget and Compare Cost-Effectiveness Across Policies?

When purchasing insurance, two core questions puzzle most people: "How much should I spend on insurance?" (Budgeting) "How to get the best coverage within my budget?" (Cost-effectiveness) This guide systematically addresses both issues, helping you scientifically plan your insurance budget and evaluate policy value—avoiding "overpaying" or "inadequate coverage."

1. How to Budget for Insurance?

1.1 General Rule: 5%-10% of Annual Household Income

5%: For tight budgets (prioritize basic coverage).
8%-10%: For comprehensive protection (including savings-type policies).
>10%: May strain finances—evaluate carefully.

Example:
A family earning ¥200K/year should spend ¥10K–20K annually, prioritizing:
✔ Health insurance (medical, critical illness, accident).
✔ Term life insurance before wealth products.

1.2 Budget Adjustments by Life Stage

Life Stage	Premium %	Priority Policies
Single (22–30)	3%-5%	Medical + Accident + Term Critical Illness
Family Growth (30–40)	8%-10%	Critical Illness + Term Life + Education Fund
Retirement (60+)	5%-8%	Medical (Cancer) + Retirement Annuity

1.3 Two Budgeting Pitfalls to Avoid

❌ Myth 1: Cheaper is always better
→ May leave you underinsured (e.g., ¥100K critical illness coverage vs. ¥500K actual treatment costs).
❌ Myth 2: Obsession with "return-of-premium" policies
→ High-cost, low-yield; better to pair term insurance with independent investments.

2. Cost-Effectiveness Comparison by Policy Type

2.1 Critical Illness Insurance: Focus on "Coverage/Premium" Ratio

Term Critical Illness (Best value):
- 30%-50% cheaper than whole-life versions.
- E.g., ¥5K/year for ¥500K coverage (30-year-old female).
Whole-Life (With death benefit):
- Costly but guarantees payout; suits those wanting lifelong coverage.

Comparison Tips:
✔ Same coverage: Which insurer offers lower premiums?
✔ Disease definitions: E.g., does "cancer" include early-stage?

2.2 Medical Insurance: Prioritize "Renewability + Coverage"

Type	Annual Cost	Pros	Cons
Million-Yuan Medical	¥200–800	High coverage (¥2M+)	¥10K deductible
Mid-Range Medical	¥1K–3K	Covers VIP/Int’l hospitals	Pricier
Premium Medical	¥5K+	Global hospitals, cashless	For high-net-worth only

Best Pick:
Guaranteed-renewable (20-year) million-yuan plans (e.g., Ping An eLife Long-Term Medical).

2.3 Term Life Insurance: Higher Leverage = Better

Leverage Ratio = Coverage ÷ Total Premiums

Product A: ¥1M coverage, ¥1K/year → 100x leverage.
Product B: ¥1M coverage, ¥1.5K/year → 66x leverage.
→ Choose Product A.

Ideal for: Primary earners (especially with mortgages/children).

2.4 Accident Insurance: Always Choose Annual Policies

Annual: ¥500K coverage for ¥150–200/year (includes ER bills + sudden death).
Long-term (Avoid): Same coverage costs ¥1K+/year—poor value.

2.5 Annuities/Whole Life (Cash Value): Compare IRR

IRR >3% is acceptable (top products: 2.9%–3.5%).

Product	Total Premium (¥500K)	20-Year IRR
A	¥500K	3.2%
B	¥500K	2.8%
→ Product A wins.

Best For:

Retirement: Annuities (fixed payouts).
Flexibility: Cash-value life (partial withdrawals allowed).

3. Insurer Comparison: Big vs. Small Companies

Debunking Myths:

Claims depend on policy terms, not company size.
Smaller insurers often offer lower prices (no brand premium).

Comparison Criteria:
✔ Price: Same coverage, cheaper premium?
✔ Service: Complaint rates (CBIRC website), claims speed (~3–10 days).

Example:
A viral critical illness policy (small insurer) may cost 20% less than a big-brand equivalent—but larger firms have more local branches (preferred by some).

4. Sample Cost-Effective Plan (¥200K Income Family)

Policy	Coverage	Annual Cost	Type
Critical Illness	¥500K x2	¥8K	Term (to age 70)
Million-Yuan Medical	¥2M	¥600	20-year renewable
Term Life	¥1M x2	¥1.2K	30-year term (matches mortgage)
Accident	¥500K x2	¥300	Annual comprehensive
Total		¥10.1K (5%)