What is Disability Income Insurance – Why You Need It, And Why You Are Often Not Told About It

Disability Income (DI) insurance is a very specific type of policy with the intended purpose of insuring one’s ability to work. Much like the Aesopian goose, most Singaporeans produce their own “golden eggs” in form of the monthly salaries they receive for working. DI steps in to replace the lost monthly income when a person is unable to work due to accident or illness.

Income replacement is possibly one of the top most priority for working class Singaporeans after a hospitalisation plan, and many insurance policies are sold on this premise. However, as cliché as the proverbial goose analogy is in the world of insurance sales, many agents are not recommending DI policies, pitching life coverage in form of Critical Illness (CI) and Total & Permanent Disability (TPD) as income replacement solutions instead. Let’s take a look at what DI does and why so many Singaporeans are under-insured in this regard.

Difference between DI and TPD

Level of Severity	Type of Disability	Typical Definitions
1	Own occupation	“Unable to perform material duties of own occupation”
2	Own or similar occupation	“Unable to perform any occupation suited by his training, occupation and experience”
3	Any occupation	“Total and permanently disabled and unable to engage in any occupation whatsoever”

TPD coverage only provides cover for the most severe form of disability, which is where one cannot earn any income at all and such a condition must be diagnosed as permanent, or if the person loses the use of any two of his eyes and limbs. This condition must also be deemed permanent and irrecoverable.

There is a big gap in TDP coverage for disability if one solely relies on TPD coverage. DI insurance includes the first two levels of severity of disability. The difference between one’s “own/similar occupation” and “any occupation” is very huge. Also, the disability must be permanent to satisfy TPD – something that is not required for DI. Illnesses or injuries can render a person incapable of working for some time, and yet not be permanent to qualify for a TPD payout.

Further Differences between DI and CI/TPD

	Disability Income Insurance	CI/TPD Coverage
Benefit Type	Monthly Benefit	Lump Sum Payout
Claim Requirement	Unable to perform material duties of own occupation for first 24 months; any occupation suited to his training, education or experience after 24 months	Meet definition(s) of: at least 1 of 30 listed Critical Illnesses, or Total Permanent Disability
Intended Purpose	Income replacement due to inability to work arising from accident or illness	Income replacement due to TPD/CI.Higher standard of living due to impairment arising from CI or TPD.

While the two coverage seem to overlap on the area of income replacement, there are scenarios whereby a claim can be admitted under DI but not under CI, and vice versa. Someone who has a Heart Valve Surgery and meets the CI definition can claim under his CI policy, and has the option to stop work to recuperate. Depending on the circumstances, it may be likely that he is still deem to perform his material duties of his work and DI will not pay. On the other hand, conditions that are not Critical Illnesses may cause him to be unable to work, such as certain mental illnesses or injuries. For more specialized occupations like dentists, carpel tunnel syndrome may well cause them to be unable to perform their jobs. Lastly, there are also situations where both will pay out at once.

Hence, the two kinds of coverage must be coordinated to ensure comprehensive coverage at a reasonable cost. The problem is that most Singaporeans are exposed only to CI/TPD coverage (and even in this aspect may be under-insured), and many people may find themselves unable to work due to an unforeseen mishap and yet be unable to claim from policies they have purchased.

Why you need it

Unlike CI/TPD, DI also pays continuously for as long as the insured is disabled, up until typical retirement ages (55 to 65, selected during the purchase of coverage). A catastrophic rest-of-life disability requires as many as 20 to 30 years of income replacement for most young adults new in the workforce.

When we are working and financially productive, we have the ability to pay our bills and prepare for retirement. Disabled people do not have the option to do that. That is where DI comes in to hedge against a situation of long-term disability.

If you are solely dependent on your financial income, having no property to derive monthly rent nor businesses to supplement you with passive income, you need DI coverage. A single mishap could cause you financial damage that your current policies are inadequate to cope with.

Why insurance agents don’t normally sell it

• Unavailability of such a policy in the agent’s limited product range. Only three companies offer such a policy.
  
• Such a policy affects sales of others. DI insurance takes care of catastrophic situations whereby the insured is unable to work for a very long period of time be it due to injury or illness (critical or not). Someone who sells this would find it difficult to persuade the client to buy a higher sum assured of pricier policies.
  
• Difficult to sell. Most people do not like to pay for pure insurance coverage, and the cost of insurance can be hidden in policies with cash value that appears to “give the premiums back” to the insured should no claim occur. Successful salespeople take the path of least resistance and it is not profitable trying to correct a prospect who prefers to give you better commissions.

It may be surprising and richly ironic that a vast majority of insurance agents are under-insured in this area as well. Why? Despite all agents having to take the Health Insurance exam which covers Disability Income insurance, most of them are unable to sell it to themselves because their companies do not carry it! Amongst the many insurers of Singapore, only two companies offer DI, ostensibly because the margins are low to the insurer (and reinsurer alike).

Since insurance is more often sold by insurance agents than bought by willing consumers, many working adults are under-insured in the area of DII for the simple fact that many insurance agents cannot sell it. Personally, I think it’s wise and common sensical not to seek insurance advice from insurance agents who only represent a single insurer – it’s like visiting a pharmacist who can only sell you cough medicine because of his exclusive partnership with a drug company that specialises solely in that.

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