Why is Disability Income Protection So Important?
I'm sure you'll agree that our wealth accumulation plans and risk management goals hinge on our ability to earn an income and actively contribute to them.
And a disruption of our income generating ability need NOT necessarily be due to either one of the 30 critical illnesses or total and permanent disability (TPD).
For example, orthopaedic-related, psychiatric issues and rheumatological conditions are not classified under critical illnesses or TPD. And these conditions can be debilitating enough to stop you from working.
Truths:
- 1 in 3 workers will become disabled for a period of 90 days or more before age 65 (source: Commissioner's Individual Disability Table A)
- The average disability absence is 2 ½ years (source: Commissioner’s Individual Disability Table A)
- 3%-4% of Singaporeans are estimated to be currently disabled and unemployed 1 in 7 workers will be disabled for 5 years or more before they reach 65 (source: http://www.stretcher.com/stories/9907261.cfm)
The impact of this disability is a loss of income, and even if you can return to work it may be to a lower paid job due to some level of ongoing disability or illness. This is the real disability cover you need to look into.
But you may ask: I am already covered, aren't I?
Many people believe they are already covered for the risk of disability. Let's look at the common misconceptions:
1. I have a policy that covers me for Total & Permanent Disability (TPD)
This only covers very severe and permanent disability. I suggest that you read the fine print definition in your policy document to understand under the circumstance under which you can make a claim. Some policies state that you need to have your limbs amputated before the insurer pays you. And it must be a pair of limbs (one leg, one arm or both legs/arms)! How often do you think this happens?? TPD protection is useful to have but falls well short of the real disability cover required.
2. I have a Critical Illness policy
Critical illness policies only cover a specific number of illnesses, usually 30. Critical illness policies work well to provide a lump sum in the event of a critical illness. But it falls short of the real disability need too.
3. I have medical insurance
Medical insurance and MediSave can help you pay your hospital and surgical bills but they do not replace your income.
4. My employer will pay me
Most employers define how long you will receive your salary in the event you are unable to work. In Singapore, this is often between 1 and 3 months, and again falls short of the real disability need too.
5. My savings or my family will help
Yes, of course you can rely on your savings or your family, provided there are sufficient funds available and you feel comfortable doing this. Unfortunately, most people do not have enough savings and most do not want to be a financial burden upon their families.
So, what can you do about it?
1. Worry
2. If option 1 is not acceptable, then you need to consider a Disability Income Plan that takes care of this gap in your protection program.
Disability Income Plans
These are specifically designed to protect against disability and will offer income replacement of around 75% of your regular income.
These plans tend to offer flexibility to meet varying needs. Hence, such plans are taken as a "standalone" plan. The rationale for this is that your need for disablilty protection is long term - if such protection is bought as a "rider" to a basic savings plan, you may find yoruself without protection if you decide to stop savings.
Hence, keep your options open and take a standalone plan.
