Health insurance is an important part of personal financial planning. There are, however, many different types of health insurance policies that a person needs to know. In the past we have written about private integrated shield plan (i.e. hospitalisation plan) and critical illness plans.
Disability insurance is another important part of health insurance which may be overlooked. But what exactly is disability insurance and what does it cover you for?
In Singapore, there are three main types of insurance policies which provide payout for disability. They are Disability Income Insurance, Total Permanent Disability and Severe Disability Insurance.
Let us briefly explain the basics of what each of these disability insurance policies are and what each of them covers you for.
Disability Income Insurance
Based on MoneySense’s definition, disability income insurance pays a fixed amount each month to replace the income you would lose if you are unable to work as a result of an accident or illness.
These policies may pay up to 80% of your average monthly salary. The policy aims to ease your financial loss, but will not completely replace the income you earned before the accident or illness.
Disability income insurance essentially protects you against the risk that a disability may prevent you from working and earning an income for yourself and your family. The ongoing monthly pay out that a disability income insurance provides will give you the income you need to cover for your monthly expenses.
When buying a disability income insurance, there are a few key things that you need to take note of.
# 1 Coverage Period
Payout isn’t lifelong. For example, the AIA Premier Disability Cover provides payout till age 65, or until policyholders have made a full recovery, whichever comes earlier.
For example, if an individual were to purchase a policy at age 50 and qualify for disability income payout 5 years later at age 55, monthly payout will be given. However, this payout will only be given till age 65. This makes sense because even if the person isn’t disabled, it’s likely that he or she would have stop working anyway by age 65.
It’s important to remember that disability income insurance is a health insurance plan, and not a substitute for a retirement plan.
# 2 Payouts Are Stopped/Reduced When You Resume Work
If a policyholder suffers a bad hand injury due to an accident and is not able to work for a period due to the injury, he can receive payout from his disability income policy.
However, if he is able to make a full recovery and resume working, the disability insurance payout will stop, since he is now well enough to work.
Alternatively, if he is able to find work but unable to earn as much as he used to due to his injury, the policy may top up the difference in income earned between what he used to earn, and what he is earning today.
He does NOT get both his current salary and the disability income payout.
Do however note that each insurer may have different wording in their contract so you should clarify with your financial adviser on any questions that you may have before signing on the dotted line for a policy.
Alternatively, if you have a question with regards to disability income insurance, you can choose to connect with one of the financial advisers on FundMyLife.
# 3 Coverage Applies But Only If You Are Employed
This is an important point to take note.
A disability income insurance only covers you when you are employed. If you encounter a disability during a period when you are found to be unemployed, as per the definition of the insurer, you may not receive the payout that you expected to get.
Do note that the definition of being unemployed is as per what’s explained by the insurer. So it doesn’t mean you get no coverage just because you happen to be in between jobs.
Also, do remember that payout is a percentage of your average salary. For example, if your average salary over the past 24 months is $3,000, you can’t just claim for a payout of $4,000 each month. You also can’t claim for a payout of $3,000 if you have not been working for the past 3 years either.
The point here is that a disability income insurance plan isn’t a lucky draw.
If you are interested in better understanding how a disability income insurance works, you can download the product brochure for Pay Assure, a disability income insurance plan by Great Eastern.
Total Permanent Disability
Total Permanent Disability (TPD) isn’t a life insurance policy of its own, but rather, one of the benefits that you can find within a life insurance or endowment plan.
Some people believe that they are covered against disability just because they have an insurance plan that covers them for TPD. While that isn’t technically wrong, TPD coverage is limited.
A payout for TPD only occurs when an individual is found to be permanently disabled. When this condition is met, a lumpsum payout, usually equivalent to the death benefit payout, will be given. The policy will then be terminated.
It’s important to note that TPD coverage is different from what is covered under disability income insurance. Disability income insurance provides monthly pay outs as long as the individual is ascertain to be unable to do his current job due to a disability, either temporary or permanent, until a certain age. TPD is only given out, in a lump sum, when it’s a permanent disability.
Once again, you should note that different insurers have different definition of what it’s to be permanently disabled so you need to understand what are the definitions first before you commit to a plan.
Severe Disability Insurance
In Singapore, we have ElderShield and CareShield Life (to be introduced in 2020). Both of these plans are provide a payout when an individual is found to be severely disabled. The criteria for severe disability are when a person cannot perform at least 3 out of 6 Activities of Daily Living (ADLs). Both ElderShield and CareShield Life shares the same payout criteria.
One important difference to note is that unlike disability income insurance, for which payouts are tied to 1) how much you were making before you were unable to work and 2) only paid till age 60 or 65, payout made under CareShield Life are lifelong.
Buy The Right Disability Insurance Policies That You Need
While some may argued that there are overlaps between disability income insurance, total permanent disability and severe disability insurance, these policies are not substitutes for one another.
All of these policies cover you in different areas. Budget notwithstanding, there are all important policies that you should consider getting. Of course, you must also ensure that you fully understand the policies that you are buying, rather than simply buying what’s cheapest.
If you have any further questions on disability insurance, you can join the Insurance Discussion SG group on Facebook, where you can engage and discuss with other like-minded Singaporeans about any insurance related questions that you may have.
However, if you prefer asking your questions in a more private setting, you can also connect to one of the advisers listed on FundMyLife. FundMyLife has a specially curated pool of financial advisers who represent different insurer so you can pick and choose whom you wish to ask your question to.
Alternatively, you can also ask your question to the platform and allow the platform to match it to the right advisers.