Why Disability Income Insurance Should Not Be Overlooked

Heartland Boy could still vividly remember the evening when Heartland Girl came hopping into their bedroom showing two lines across the pregnancy test kit. Of course, Heartland Boy leapt with joy at the thoughts of becoming crowned a dad. As unromantic as it sounds, the impending reality that Heartland Boy would soon have a dependent sank in very quickly. A nicer way of putting it is that Heartland Boy has strong innate paternal instincts. He soon rang up his insurance agent to request for a holistic review of the family’s insurance policies. The aim is to ringfence risks so that the family has a strong financial protection. His agent raised the red flag that Heartland Boy did not have any disability income insurance. After a thorough explanation of this insurance product, Heartland Boy wholeheartedly agrees that disability income insurance should not be overlooked, especially for individuals with dependents.

Why Disability Income Insurance Is Important

To be honest, getting disability income insurance has never ever crossed Heartland Boy’s mind. Unlike a Hospitalisation & Surgical (‘H&S’) policy which has gained some level of familiarity with the general population, a disability income insurance remains pretty much an unknown quantity. That it is an afterthought is a strong understatement. Yet, for an individual with dependents, it stands almost on par in terms of importance as an integrated shield plan.

The reasoning is simple; we often spend years honing our craft or acquiring our knowledge in order to secure a high-income job. For instance, we may spend approximately 20 years to get a Bachelor degree which land us a cushy job in the corporate world. Likewise, a chef may spend many years honing his craft before landing a position of head chef in a restaurant. Given the amount of blood, sweat and tears put into these endeavours, it will surely make financial sense to protect ourselves against the possibility of losing these income streams as a result of some form of disabilities.

Examples Of Total Disability

It is therefore worth investigating the remoteness of suffering some degree of disability such that it causes us to lose our income streams. Ever had a colleague or friend who is a weekend warrior that suffered the misfortune of breaking his/her leg during a friendly soccer game? Such an injury typically takes a long time to heal and that means many months of no-pay medical leave. While a good private health or Personal Accident policy may take care of the medical bills and claims, the household may face the stark prospect of several months of financial difficulties, especially if the injured individual is also the sole breadwinner of the family.

Another example would be the case of a surgeon who suffers nerve injuries to the hand such that he or she is no longer capable of performing delicate surgeries. Yet the injury is not serious enough to put the surgeon completely out of work in the medical field as he or she is still capable of practising as a General Practitioner. In such circumstances, it is not uncommon to find a drastic drop in incomes arising from a reduced role.

It is worthwhile to note that for situations where the injury suffered is permanent such that it results in a long-term disability, even lump sum payouts that are often associated with Personal Accident or Critical Illness policies may not be sufficient to last the household in the long term.

Heartland Boy Bought AVIVA IdealIncome

For his choice of income disability insurance, Heartland Boy purchased the AVIVA IdealIncome. It is a policy that comes with the following characteristics:

1) 3-month Deferred Period

This refers to the minimum period the total disability must be continuous before benefits become payable. In layman terms, the disability must put you out of work for a minimum of 3 months before the benefits kick in. Therefore, the longer the deferred period, the lower the premium payable as the likelihood of a benefit being paid out decreases with a more stringent definition criterion.

2) 3% Escalation Benefit

Disability benefits will escalate and compound at this rate from the year the benefits become payable. This is extremely useful in combating inflation. For example, a disability benefit of $3,000 in Year 2019 may not be able to bring about the same standard of living in Year 2029.

3) Premium Waiver Benefit

Premiums payable in the policy are waived upon Life Assured being entitled to receive the disability benefits. This is great as it meant that Heartland Boy need not worry about servicing the premiums should he suffer from an event of disability.

4) Reduced Benefit During Period of Unemployment

One of the confusions surrounding disability income insurance is that it is often interpreted as an unemployment insurance. This cannot be further from the truth. Conceptually, a disability income insurance is simply not an unemployment insurance. In fact, the disability benefit is reduced to $500 should the Life Assured suffers from Total Disability during a period of unemployment. Rather, this reduction in benefit, but not in premiums payable, should motivate the Life Assured to remain in meaningful employment whenever possible.

It is also the good work of his insurance agent that Heartland Boy managed to purchase this policy during a promotional period whereby there was a 35% discount on the cost of the premium for the entire lifetime of the policy.

Conclusion of Disability Income Insurance

After the discussion with his insurance agent, Heartland Boy really thinks that disability income insurance is a necessary protection tool for his family. His chase for financial independence is highly dependent on his ability to secure a well-paying job. Yet, this dream could easily be derailed by a single unfortunate and unforeseen episode. Therefore, disability income insurance at least serves to play a role of ensuring a decent level of income for his family.