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Do you really need Disability Income Insurance? A firsthand account lays out the complete truth

Posted 3 May, 2018 by Clearly
in Guest Contributions

Mark is no stranger to Insurance. He is one of the few people that we’ve met who did his own extensive research on various policies before deciding to buy them – with minimal assistance from any adviser.

He also had the experience of doing his own claims when he was diagnosed with cancer, which further cemented his considerable knowledge in this field. In this article, he shares with us, as a layperson, his thoughts and advice on one of the most neglected policies that Life Insurance has to offer.

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Should you get Disability Income Insurance (DII)?

 

Disability Income Insurance (DII) is an uncommon and not well understood insurance policy. When I was diagnosed with cancer, I had to go on long medical leave for 8 months. I was fortunate enough to have insurance, including DII, which turned out to be hugely beneficial to me.

Other than hearing about its benefits from Financial Planners and Agents, I would like share my independent thoughts so others who are considering it have a better idea of what it is and if it is worth it for them.

 

What is Disability Income Insurance?

 

DII basically pays you a monthly benefit for the months that you are unable to work and not receiving income. This is different from the Medishield/Integrated Shield plans (which pays for your hospital treatment and stay) and Critical Illness (which pays you a lump sum if you get a critical illness).

 

The bad news: It’s complicated

 

DII is unique in that it doesn’t just rely on your heath for a claim. It also hinges on your employment status. As such, you will need to do additional paper work when you file a claim to prove not just your health status, but also your salary, employment and job scope.

 

The theory of relativity coupled with a solution for a quadratic root consisting of complex numbers. Surely DII is easier than this, but barely

 

Tying it to employment also complicates matters when you go unemployed, start a business, or work as a freelancer e.g. Uber or contract work. For such employment statuses, it isn’t easy to prove your income, which is necessary for your claim. Most likely you would use your tax returns, but that would be from last year. In addition, if you go unemployed for too long, the DII can be cancelled or the benefit greatly reduced.

As such, the claims and application process can be twice as much work compared to say, a critical illness claim. The policy contract is also more complicated with more clauses and definitions to understand.

 

The good news: It has a wider scope of coverage compared to Critical Illness plans

 

One umbrella good, many umbrellas even better. Same goes for DII coverage

 

Critical Illness insurance only covers 37 diseases. However, there are a lot of things that can put you out of work for a long time. These can be accidents, mental illness or anything that falls outside of the 37 official diseases covered. (Editor: Laziness isn’t one of them, mind)

Let’s say that you have medically diagnosed depression and need a break from work for 6 months. It’s feasible that DII will help cover expenses while you recover. This illness wouldn’t be covered under Critical Illness insurance.

Disability income insurance is thus a good insurance to help cover any gaps in your insurance policies, and ensure you have protection for a wider range of unfortunate situations.

 

But is it worth it?

 

It costs about $1 dollar a day for a $3,000 monthly benefit. For the same price, you can probably get a CI policy of about $150,000.  Say that you can claim the DII for 2 years, you would get $72,000, less than half of the critical illness payout. Does it mean that it is less valuable?

Not necessarily. The powerful thing about DII is that it lasts your whole life. Meaning that you potentially can get much more than you would from critical illness lump sum. If you become unable to work for most of your life, you can potentially get hundreds of thousands, and unlike critical illness, don’t need to worry about the money running out.

 

However, do note that after 2 years, typically the definition for not being able to work would change from your occupation to “any occupation”. This means that maybe you can’t be an engineer anymore (because it’s become physically or mentally taxing) but you might be fit enough to be an admin assistant. The DII would compensate your loss of income by the step-down in your job. But you would have to go back to some kind of employment, or the benefit might stop entirely.

(Editor: This varies from policy to policy. Some policies have a hard cap on the number of months of payout. We show 2 examples from different insurers)

 

Clause d: full payment of the Monthly Disability Benefit is made after 3 or 6 years, depending on the plan chosen with this insurer.

 

This DII pays out till the end of the policy term, provided conditions are met

 

Conclusion

 

Both the underwriting and claims process are stricter than other policies. But looking at the above, it does make sense for the insurance company to take measures to protect themselves against astronomical sums.

Given that DII is not meant to cover large immediate medical bills, DII is less crucial than Medishield/IP and Critical Illness plans. A DII plan is a plan you would consider after getting those plans.

 

So should you get DII? I would lean towards yes if you fit the following criteria:

  • A stable job
  • Already have Medishield/IP and Critical Illness plans
  • You want to cover a wider range of averse situations
  • You understand and don’t mind the paperwork

 

If you:

  • Are in unstable or risky employment
  • Have no other kinds of insurance
  • Dislike complex policies and doing paperwork
  • Are close to retirement

Then Disability Income Insurance will most probably not be your utmost priority.

I hope that you now have a better understanding of how DII works.

 

www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

We would like to thank Mark for graciously sharing his experiences as a non-insurance practitioner. You can read about his story from the article links below:

I am a Stage 3 Cancer Survivor with a newborn. My story isn’t important, but my experience could be invaluable to you [Part 1 of 2]

I am a Stage 3 Cancer Survivor with a newborn. My story isn’t important, but my experience could be invaluable to you [Part 2 of 2]

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