Should I get Disability Income Insurance?

and ydisability

How would you get by if u lose your ability to work and earn a paycheck every month?

Financially speaking, working disability is worse than death. Our earning ability is our greatest asset and you are the golden goose that lay the golden eggs. Most insurance policies only pay when the golden goose drops dead or is critically ill, but this is not enough. What we need to do is to insure the golden goose’s “ability” to lay golden eggs.

But you may ask: I am already covered, right?

Some people may believe they are already covered for the risk of disability. Let’s look at the common misconceptions:

I have a policy that covers me for Total & Permanent Disablement (TPD)
This only covers very severe disability, such as losing a pair of limbs before your insurer pays you. What if a teacher loses her voice and has to quit teaching? This does not meet the definition of TPD, but is sufficient to trigger your disability income payouts till your desired retirement age.

I have a Critical Illness policy
Currently, critical illness insurance providers do not cover diabetes as one of the 37 critical illnesses. What if a pilot is grounded because his diabetic condition affects his vision? Critical illness policies work well to provide a lump sum to cover medical expenses. But it falls short of the real paycheck protection need.

I have personal accident coverage

The weekly income payable from personal accident plans is payable only if the cause of disability is accidental, defined as involuntary and violent. Working disability from illnesses is not covered.

My employer will pay me
Most employers define how long you will receive your salary if you are unable to work. In Singapore, this is often between 1 to 3 months, which will not be sufficient in the case of long-term working disability.

Therefore, it is crucial for all working adults to consider a Disability Income policy that provides for replacement of income in all scenarios of working disability. If a sickness or injury (of any severity) prevents you from working for at least 60 days, it can replace 75% of your earned income, by offering a tax-free cash benefit every month.

4 Types of Insurance Cover You Need

life buoy protectionLife is full of uncertainties and we need to always be prepared for the untoward. Doing all you can to keep your family and yourself away from financial hardship is very important. Once you have set aside an emergency fund of three to six months of living expenses, you should be seriously thinking of taking care of your protection needs. Here are the 5 types of protection we need for comprehensive insurance cover.

1. Hospital & Surgical (H&S)

If an unexpected illness or accident happens, the first costs that you will have to take care of are your hospital & surgical bills. A major illness or injury can wipe out all our Medisave funds and even our life savings. One of the most dreadful things when you are ill is deciding which assets you have to liquidate to pay the medical bills. With escalating healthcare costs in Singapore, hospital & surgical insurance is undoubtedly the most essential type of protection for anyone.

2. Disability (Income Protection)

What is your most important financial asset? This is a question I often ask people and they may initially say things like the house they own, their car, or any other investments they have. Upon further prompting, they will realise that their greatest asset is in fact themselves. It is our ability to write, speak, read and commute to and from work that allows us to make a living. The effects of disability can range from a minor and temporary reduction in income to a catastrophic lifetime loss of income. The table below sums up the different types of disability which we should cover ourselves for as a form of income replacement:

Rising in Severity (1 to 3) Disability Type Common Definitions
1 Own occupation “Unable to perform material duties of own occupation”
2 Own or similar occupation “Unable to perform any occupation which one is reasonably fitted by training, experience or education”
3 Any occupation “Total and permanently disabled and unable to engage in any occupation”

3. Critical Illness

Advanced stage

This provides a lump sum pay-out when you are diagnosed with one of 37 specific illnesses such as invasive cancers at an advanced stage. Some people believe that critical illness (CI) cover is unnecessary if they are covered by their H&S plans. However, these Medisave-approved Integrated Plans which most Singaporeans rely on are insufficient to cover all expenses due to a major illness. Our shield plans reimburse only for inpatient expenses, costs for cancer treatment such as chemotherapy and radiotherapy, and kidney dialysis. A cancer patient is commonly not warded in a hospital unless surgery is required or life support is essential towards the terminal stage of the illness. Most of the medical expenses incurred on specialist consultation, medical examination, laboratory tests and specialised cancer drugs cannot be claimed in H&S plans.

Furthermore, for someone diagnosed with an advanced stage CI, in order to recover well he/she may have to take time off work for a prolonged period of time. For working adults, the income lost due to time away from work while undergoing treatment and rehabilitation will not be compensated.

Early stage

Early stage CIs usually require a lower cost of treatment and chances of recovery will be higher than advanced stage CIs. However, if an early stage cancer patient is not warded in a hospital, it is still good to have a small amount of cover for expenses not covered by the hospitalisation plan. In addition, wouldn’t it be great if we can have the choice to stop work and rest, if we are diagnosed with an illness? We can never predict if our illness will worsen. Having an insurance pay-out allows us to take leave from work to rest and receive treatment when our illness is still at an early stage. This can enhance our chances of recovery. 

4. Death

Death cover provides a pool of funds to your spouse and dependents in the event of your untimely death, to make sure that the family that you so painstaking work for do not tumble when you are gone, and that they can continue to live life as well as they always have. Nothing can compensate the emotional loss of a loved one, but if the financial aspect is well taken care of, it makes things a little more bearable.

 

7 Reasons Why We Need Life Insurance

We buy life insurance as a solution to life’s problems and opportunities. In Singapore, as people become more financially literate, the percentage of us enjoying insurance protection has increased since the mid-1900s. Here are 7 reasons why we need life insurance:

1. Protection against premature loss of income

“The greater your income, the more you stand to lose. The less your income. the less your family can afford to lose.”

broken piggy bank -wipe savingsTo put it simply, we need life insurance because we may “die too soon”. Nobody knows how long one’s lease on life will run before it expires. Life insurance provides the means to ensure that an early, untimely death will not wipe out the potential income that could be used to support the family.

Insurance is particularly useful for a married man with a wife and a few young children. All his hopes and dreams of making a decent provision for his family would be dashed by one unfortunate event – death.

For just three cents, the dollar can be protected. No other financial instrument can do this so well.

2. Provision against disability

One common misconception about life insurance is that you have to die to benefit. Sometimes death could be more merciful and quick. But what if you don’t die but linger on disabled?

Would your cost of living increase? YES. Would your income continue? NO! What a terrible combination – to be alive yet not having an income, coupled with increased cost of living!

Certainly, your family can take care of you. But don’t you wish to make things easier for them by providing the means to take care of you? Sometimes, people say that if anything happens to them, their brother/sister will take care of them.

Assuming the roles are swapped, it’s not you but your brother who is disabled. Now, how are you going to look after him? Wouldn’t it be much easier if he passes you $10,000 every year to defray some of the expenses?

3. A worthwhile “investment”

How would you define a good investment? Too often, only one criterion is mentioned – rate of return, usually measured in terms of interest. Apparently, the most meaningful definition of a good investment should be – It pays best when needed most.

When something untoward happens, life insurance provides a guaranteed “investment” return. Although we will never wish to benefit from this investment, it pays us at the moment when needed most.

4. An expression of love and care for family

“It’s a mistaken kindness or misappropriated affection, to provide so well today that inadequate provision is made for tomorrow.”

family

This is life insurance at its best. The average person may feel that buying various gorgeous/cool gifts is a good expression of love and concern for the family. So, he buys a car so the family has a convenient form of transportation, on instalment. He buys a huge 3D smart TV for the entertainment of his wife and children, on instalment. All is well and good, provided he lives long enough to see the end of the payments. But should the unexpected happen, every item on hire purchase will be taken away, leaving broken dreams and unfulfilled wishes.

Children are told to study hard, not just for today, but to be ready for tomorrow. By buying life insurance, the parents have demonstrated a live example for the children – by taking care of tomorrow today, the future will take care of itself.

5. Peace of mind

“Death comes everyday to someone and someday to everyone.”

It is the only certainty in life, other than tax maybe. When a responsible person knows that he has made sufficient preparation for a predictable event in the future, he feels a sense of peace with himself and peace within himself.

Still, there are people who prefer to worry and take a risk. To be under-insured is the biggest gamble you can take. And it is a particularly tragic one, for if you lose, it is not you but your loved ones who lose. Why worry when you can insure? In fact, why worry when for a small regular sum you can let the insurance company do the worrying for you?

6. A security against creditors

“Sir, this bag of money can only be given to your wife and children. Nobody else can touch this.”

loansharkA person will never know when a creditor may turn up. And when the creditor comes, usually this will be at the worst possible time when the family can ill-afford it. How sad to see houses and all types of assets being taken away because creditors have a legal right to them.

No widow should suffer the additional hurt of having her assets re-possessed because provision was not made for some money to be creditor-proof! The proceeds of a life insurance policy can only be received by his beneficiaries and is protected from any creditor.

7. Tax Relief

This used to be a popular reason for buying life insurance. Your premium paid on your policies is considered as a tax deduction – it will not be part of your income that is taxed! It is a reward for looking after your own future needs.

People in the lower income bracket will also find this reason to be a good incentive to cover themselves.