Disability income insurance can help those suffering from disabilities get back on their feet. But should every Singaporean use it?
Salary insurance or disability income insurance is a plan that pays a portion of your monthly salary in case an accident makes you unable to work because of a disability.
In exchange for regular premium payments, you can receive up to 75% of your salary at the time of your application. This payout will be provided whether your inability to work is temporary or permanent.
Should you be forced to switch to a lower-paying job (for example, you become wheelchair bound and cannot effectively carry out your outdoor sales job any longer), a disability income plan may continue to furnish a partial payout that helps replace the missing income.
These payouts end at your chosen retirement age, usually 65 years old. A disability income plan may also include other benefits, such as a one-time rehabilitation benefit, a death benefit, or a lump sum payout in the event of catastrophic disability.
Isn’t That The Same As a TPD Benefit?
Although a TPD benefit (Total and Permanent Disability) and disability income fulfil the same function - i.e., providing funds to cover living expenses should disability stop you from working - both were created for different goals.
A TPD benefit is a lump-sum payout that is meant to help replace lost earning power and maintain a standard of living comparable to before the injury.
However, the conditions for redemption are strict. A TPD benefit requires extreme injuries (such as loss of sight or limb, for example) to trigger the full payout. In the case of lesser injuries (such as loss of fingers), only a partial payout will be given.
Also, the disability has to be long-lasting and irreversible, and severe enough to hinder 3 out of 6 activities of daily living (eating, toileting, dressing, washing, mobility and transferring) - that’s what ‘Total and Permanent’ means.
In contrast, the focus of disability income is to support your efforts in regaining the same standard of living you enjoyed before your injury. It is to keep you going as you recover from your injury.
Note that disability income pays out as long as you have been certified to be medically unfit for your current profession. Payouts are dispensed even if your disability is deemed temporary, and full recovery is expected.
Hence, because disability income covers a wider range of circumstances, some may consider it more useful than a TPD benefit.
However, disability income is not without flaws. Payouts are capped at 75% of your salary at the time of application. This presents two issues - 1) your salary (and expenses) may have outgrown the income you initially signed up for, and 2) a TPD benefit may provide more money overall.
That Sounds Great, But Why Have I Not Heard About It Before?
If you’ve not been hearing very much about disability income plans, it may be because few insurers offer them.
At the time of writing, we only found 3 insurers offering disability income plans: Singlife IdealIncome; Great Eastern Life Pay Assure; and Great Eastern Life Premier Disability.
And as to why financial advisers hardly bring these plans up? Well, perhaps because disability income seems to a superior option to a TPD benefit.
Heavily promoting disability income plans may cause clients to ignore life insurance plans (which usually come bundled with TPD benefits). This may have an impact on sales and commissions.
Or perhaps, demand for disability income is low among Singaporeans, and insurers are simply focussing their efforts on products that sell better.
So Who Should Get A Disability Income Plan?
Disability income plans could prove useful for persons who cannot afford a disruption in their income stream.
If you have aged parents or young children to support, or perhaps a mortgage to pay for, an injury that causes you to be disabled for months could cause you to lose your job. Meanwhile, the hospital bills could wipe out your savings.
As a result, the well-being of your loved ones could come under threat.
With disability income, you may be able to meet part or all of your family’s expenses, leaving you better able to focus on recovery, and eventually re-join the workforce.
However, do note that once signed up, disability income plans remain in force until the predetermined end age. You may be subject to heavy penalties in case you surrender your disability income plan early.
Thus, even though disability income plans seem like an ideal solution for breadwinners wishing to gain some assurance, they should not be purchased on a whim.
You should speak to a qualified financial adviser to find out the terms and conditions in detail, and to see if you are spending too much for insurance.
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By Alevin Chan
A Certified Financial Planner with a curiosity about what makes people tick, Alevin's mission is to help readers understand the psychology of money. He's also on an ongoing quest to optimize happiness and enjoyment in his life.