Disability Income Insurance
How do you protect your lifestyle?
You can protect your lifestyle by making sure that you have an income till age 65 in the event that you are unable to work because of an injury or illness. By protecting your income, you can take care of your living expenses for yourself and your loved ones. In order to protect your lifestyle and income, you need disability income insurance or income protection plan.
How does disability income insurance works?
Take for example a male teacher who earn $6000 per month, he can cover for monthly benefit of $4500 which is 75% of his monthly gross income. In the event that he can’t perform the material duty of his job say due to depression. After the deferment period, he will be paid $4500 per month till age 65 assuming that he didn’t recovered. If he recovered, the monthly benefit payment stop and he goes back to work. His insurance cover continues.
Take another example a female dentist who earn $12000 per month, she is self-employed so can cover for monthly benefit of $7800 which is 65% of her monthly gross income. In the event that she can’t perform the material duty of her job due to an accident that hurt both her hands. After the deferment period, she will be paid $7800 per month. Let say after a few year of rehabilitation, she recovered but couldn’t perform her job as a dentist any more. However she got a job that paid her $5000, assuming that her insurance has the Partial Disability Benefit, her insurer will still pay her $4550 per month. In total she would have $9550 per month.
How to assess whether you need to protect your lifestyle?
If you are financially free meaning that you have passive income to pay for your bills and meals for as long as you are living. Then you don’t need disability income insurance. However, if you don’t have savings to last for minimum 5 years, you may run into financial hardship when you can’t work and there is no income. All your insurance will lapse due to no premium payment. What happen to your water, gas and electricity if you can’t pay your bills for a long period of time? Some may see their MP for food vouchers but this is not a long term solution especially if one can’t work for a few years.
The irony is that we spend about 13 year to 16 years of education to prepare ourselves for the job markets. Finally we get our first job and we don’t have to depend on our parents financially. We still have to work for another 30 year to 40 years in order to achieve financial freedom. When we achieve financial freedom, we will be able to maintain our lifestyle from age 65 to age 90. In the unfortunate event that an accident or illness happen to us before we can be financially free, who can pay for all our bills and meals?
Therefore protecting our lifestyle is not a luxury but to make sure that we still can live our lives with dignity in the event that we can’t work for a long period of time. At the same time, making sure that we can provide for our dependants who depend on us for their living expenses.
Understanding disability income insurance
Don’t mistaken the word disability income with ‘Total Permanent Disability’ or TPD. Most of your term plan, whole life plan, endowment plan or ILP cover death and TPD so you may think that you are covered with disability insurance. The key is to look into the claim definitions of disability income and TPD.
Sample of various claim definitions:
Definition of TPD
If the Life Assured is aged seventy (70) next birthday and below, and has suffered total and irrecoverable:
a. Loss of the sight of both eyes; or
b. Loss of sight of one (1) eye and loss by severance or loss of use of one (1) limb at or above the ankle or wrist; or
c. Loss by severance or loss of use of:
i. Both hands at or above the wrists; or
ii. Both feet at or above the ankles; or
iii. One (1) hand at or above the wrist and one (1) foot at or above the ankle.
Definition of enhanced TPD
If the Life Assured is between aged nineteen (19) to sixty five (65) next birthday, and in the event of the Life Assured becoming totally and permanently unable to perform (due to disease, illness or injury) at least three (3) of the six (6) “Activities of Daily Living” (despite the aid of special equipment) and requires the physical assistance of another person throughout the entire activity.
Definition of disability income insurance
During working periods:
“Total Disability” means a state of incapacity, resulting from illness or accident, which is such that the Life Assured is
(a) totally unable to perform the material duties of
i. his own occupation or profession for the first twenty four (24) months of any period of Total Disability; and
ii. any occupation or profession to which he is suited by reason of his training, education or experience after the first twenty four (24) months of any period of Total Disability; and
(b) not performing any work or engaged in any occupation or profession to earn or obtain any remuneration, whether declared or undeclared to the company.
TPD is considered as very severe disability whereas Eldershield & Enhanced TPD is severe disability based on 3 Activities of Daily Living (ADL) out of 6 ADL. Disability Income Insurance is based on your inability to perform the material duty of your present occupation. A person suffering from depression and not able to perform his job will be able to claim and get a monthly benefit to cover his daily expenses after the deferment period.
There are three insurers with disability income insurance by the following product name (in alphabetically order):
Benefit amount: This is the insured amount or monthly benefit which should be 75% of your gross monthly income for employee. For self-employed, monthly benefit should be 65% of gross income.
Deferment period: This is the waiting period before insurer start to pay the monthly benefit. It can varies from 2 months to 6 months. Usually you can reduce your premium by choosing a longer deferment period. If you have an emergency fund of 6 months, you could save on your premium by choosing a 6 months deferment period.
Waiver of premium: In the event of claim, insurer will waive the premium. All disability income insurance should have this feature.
Partial Disability Benefit: If the Life Assured is able to return to employment in a reduced capacity, which leads to a reduction in pre-disability earned income of more than 25%, Partial Disability Benefit is payable. The formula to calculate for partial disability benefit for one insurer is (Monthly Pre disability earnings – Present earned income) / Monthly Pre disability earnings x Monthly total disability benefit. Not all insurers have this benefit.
Rehabilitation Benefit: There may be additional medical or occupational therapy that will aid the Life Assured to recover and to return to full or partial employment. Rehabilitation expenses include, for example, the cost of medical aids and workplace modifications. This benefit may varies from 3 to 6 times the monthly benefit with different insurers.
Escalation Benefit: This benefit allow you to cater for inflation of 3% p.a. once the pay-out starts. Not all insurers have this benefit.
Death benefit: The death benefit for such insurance is very low. It varies from a few thousands to 12 times the monthly benefit. Usually this is not the insurance to cover your death benefit shortfall.
During Non-working period: Disability income insurance is to protect your income for life insured who are working. Non-working period is a period whereby life insured are not working like quitting their job or retrenchment. The definition for non-working period is not the same as ‘During working period’. Usually it is based on Activities of Daily Living.
Catastrophe Disability Benefit: In the event of total permanent disability (TPD), one insurer pays up to 24 times the monthly benefit. Usually you would have other insurance plans that cover you sufficiently for TPD. Not all insurers have this benefit.
Protect your income today and enjoy a peace of mind that you can maintain your lifestyle. Contact us for a discussion.
You can protect your lifestyle by making sure that you have an income till age 65 in the event that you are unable to work because of an injury or illness. By protecting your income, you can take care of your living expenses for yourself and your loved ones. In order to protect your lifestyle and income, you need disability income insurance or income protection plan.
How does disability income insurance works?
Take for example a male teacher who earn $6000 per month, he can cover for monthly benefit of $4500 which is 75% of his monthly gross income. In the event that he can’t perform the material duty of his job say due to depression. After the deferment period, he will be paid $4500 per month till age 65 assuming that he didn’t recovered. If he recovered, the monthly benefit payment stop and he goes back to work. His insurance cover continues.
Take another example a female dentist who earn $12000 per month, she is self-employed so can cover for monthly benefit of $7800 which is 65% of her monthly gross income. In the event that she can’t perform the material duty of her job due to an accident that hurt both her hands. After the deferment period, she will be paid $7800 per month. Let say after a few year of rehabilitation, she recovered but couldn’t perform her job as a dentist any more. However she got a job that paid her $5000, assuming that her insurance has the Partial Disability Benefit, her insurer will still pay her $4550 per month. In total she would have $9550 per month.
How to assess whether you need to protect your lifestyle?
If you are financially free meaning that you have passive income to pay for your bills and meals for as long as you are living. Then you don’t need disability income insurance. However, if you don’t have savings to last for minimum 5 years, you may run into financial hardship when you can’t work and there is no income. All your insurance will lapse due to no premium payment. What happen to your water, gas and electricity if you can’t pay your bills for a long period of time? Some may see their MP for food vouchers but this is not a long term solution especially if one can’t work for a few years.
The irony is that we spend about 13 year to 16 years of education to prepare ourselves for the job markets. Finally we get our first job and we don’t have to depend on our parents financially. We still have to work for another 30 year to 40 years in order to achieve financial freedom. When we achieve financial freedom, we will be able to maintain our lifestyle from age 65 to age 90. In the unfortunate event that an accident or illness happen to us before we can be financially free, who can pay for all our bills and meals?
Therefore protecting our lifestyle is not a luxury but to make sure that we still can live our lives with dignity in the event that we can’t work for a long period of time. At the same time, making sure that we can provide for our dependants who depend on us for their living expenses.
Understanding disability income insurance
Don’t mistaken the word disability income with ‘Total Permanent Disability’ or TPD. Most of your term plan, whole life plan, endowment plan or ILP cover death and TPD so you may think that you are covered with disability insurance. The key is to look into the claim definitions of disability income and TPD.
Sample of various claim definitions:
Definition of TPD
If the Life Assured is aged seventy (70) next birthday and below, and has suffered total and irrecoverable:
a. Loss of the sight of both eyes; or
b. Loss of sight of one (1) eye and loss by severance or loss of use of one (1) limb at or above the ankle or wrist; or
c. Loss by severance or loss of use of:
i. Both hands at or above the wrists; or
ii. Both feet at or above the ankles; or
iii. One (1) hand at or above the wrist and one (1) foot at or above the ankle.
Definition of enhanced TPD
If the Life Assured is between aged nineteen (19) to sixty five (65) next birthday, and in the event of the Life Assured becoming totally and permanently unable to perform (due to disease, illness or injury) at least three (3) of the six (6) “Activities of Daily Living” (despite the aid of special equipment) and requires the physical assistance of another person throughout the entire activity.
Definition of disability income insurance
During working periods:
“Total Disability” means a state of incapacity, resulting from illness or accident, which is such that the Life Assured is
(a) totally unable to perform the material duties of
i. his own occupation or profession for the first twenty four (24) months of any period of Total Disability; and
ii. any occupation or profession to which he is suited by reason of his training, education or experience after the first twenty four (24) months of any period of Total Disability; and
(b) not performing any work or engaged in any occupation or profession to earn or obtain any remuneration, whether declared or undeclared to the company.
TPD is considered as very severe disability whereas Eldershield & Enhanced TPD is severe disability based on 3 Activities of Daily Living (ADL) out of 6 ADL. Disability Income Insurance is based on your inability to perform the material duty of your present occupation. A person suffering from depression and not able to perform his job will be able to claim and get a monthly benefit to cover his daily expenses after the deferment period.
There are three insurers with disability income insurance by the following product name (in alphabetically order):
- AIA Premier Disability Cover
- Singlife Ideal Income
- Great Eastern Life Pay Secure
Benefit amount: This is the insured amount or monthly benefit which should be 75% of your gross monthly income for employee. For self-employed, monthly benefit should be 65% of gross income.
Deferment period: This is the waiting period before insurer start to pay the monthly benefit. It can varies from 2 months to 6 months. Usually you can reduce your premium by choosing a longer deferment period. If you have an emergency fund of 6 months, you could save on your premium by choosing a 6 months deferment period.
Waiver of premium: In the event of claim, insurer will waive the premium. All disability income insurance should have this feature.
Partial Disability Benefit: If the Life Assured is able to return to employment in a reduced capacity, which leads to a reduction in pre-disability earned income of more than 25%, Partial Disability Benefit is payable. The formula to calculate for partial disability benefit for one insurer is (Monthly Pre disability earnings – Present earned income) / Monthly Pre disability earnings x Monthly total disability benefit. Not all insurers have this benefit.
Rehabilitation Benefit: There may be additional medical or occupational therapy that will aid the Life Assured to recover and to return to full or partial employment. Rehabilitation expenses include, for example, the cost of medical aids and workplace modifications. This benefit may varies from 3 to 6 times the monthly benefit with different insurers.
Escalation Benefit: This benefit allow you to cater for inflation of 3% p.a. once the pay-out starts. Not all insurers have this benefit.
Death benefit: The death benefit for such insurance is very low. It varies from a few thousands to 12 times the monthly benefit. Usually this is not the insurance to cover your death benefit shortfall.
During Non-working period: Disability income insurance is to protect your income for life insured who are working. Non-working period is a period whereby life insured are not working like quitting their job or retrenchment. The definition for non-working period is not the same as ‘During working period’. Usually it is based on Activities of Daily Living.
Catastrophe Disability Benefit: In the event of total permanent disability (TPD), one insurer pays up to 24 times the monthly benefit. Usually you would have other insurance plans that cover you sufficiently for TPD. Not all insurers have this benefit.
Protect your income today and enjoy a peace of mind that you can maintain your lifestyle. Contact us for a discussion.