Important Insurance Coverage Nobody Is Telling You

There is a type of insurance coverage that is extremely important to working adults in Singapore, but almost no insurance agent is recommending it. What is it, and why are Singaporeans underinsured in this regard?

Most of us reading this right now are working adults whose main income comes from our day jobs. That makes our ability to work something of paramount importance financially speaking, and hence is something we need to insure. Unfortunately, the way to provide this coverage is often not recommended, and it’s called disability income insurance. I recommend you watch the video in its 16-minute entirety for a more comprehensive look at this important form of coverage.

What’s disability income insurance?

Unless you’re an heir to a large inheritance or business owner who gets passive income from your business(es) – keyword being passive – disability income insurance is the next most important coverage after your hospitalisation policy.

It works like this: you choose the monthly benefit at the point of purchase, and it’s capped at a maximum of 75% of your gross monthly income. You also get to select the tenure of the policy, and it’s up to age 55, 60, or 65, typical retirement ages in Singapore. When an event renders the insured unable to work due to medical reasons, be it due to accident or illness, the policy steps in to provide the monthly benefit to replace the person’s income.

The inability to work is defined by being unable to perform the job duties of one’s own occupation, or similar occupations by virtue of one’s training and experience.

What about TPD, early CI, or CareShield?

TPD
When “disability” and “insurance” are mentioned in the same breath, many might think they are already insured. I have TPD coverage, you might think, but consider the definition of TPD more closely. TPD is only paid out if the insured cannot work in any occupation to derive an income. This is a world of difference from being unable to work in one’s own occupation.

If a person drives for a living and develops hearing damage of some sort, he/she might not be able to continue his job, but he/she might be able to work as an odd job labourer. TPD does not provide any income replacement in such a situation.

Moreover, the T and P stand for Total and Permanent, which means that if there’s even a chance that the person may recover in the vague, distant future, this condition will not meet the definition of Total and Permanent Disability.

Early CI
Early Critical Illness coverage is the answer then, perhaps? Not quite. Early CI policies, like its traditional CI counterparts, provide a lump sum payout upon diagnosis of a disease that meets one of the illnesses listed in the policy which are things like early stage cancer, heart ailments etc. It does not relate to a person’s ability to work, and indeed there are many unspecified things that may lead to a person’s medical inability to work that fall outside of a list of predefined illnesses.

A common objection to disability income insurance I’ve heard is that the unlike CI policies, the definition is vague. I actually think that the definition is clear as day: as long as a person is medically unfit to perform his job duties, disability income insurance provides the payout. Think about your hospitalisation plan: would you rather your hospital plan only pay for hospital bills when the illness falls in a pre-approved list of conditions, or would you want it to pay as long as the hospitalisation is medically necessary as ordered by a doctor?

In any case, even if early CI and disability income cover the same situations (they do not), the lump sum payout may not come close to providing income replacement for a lengthy period of job loss. Think about a rest-of-life disability, or even something that lasts more than a few years; disability income pays for as long as the person is continually unable to work, while early CI provides a lump sum that is likely to run out. How much early CI coverage can you purchase when it is already a pricey form of coverage?

CareShield Life
Finally, disability income insurance is often compared to CareShield Life, but CareShield Life does not insure your ability to work. instead, it relates to the activities of daily living (ADL): dressing, mobility, toileting and such. Will a person unable to dress him/herself be unable to work? That is likely the case. Both CareShield and disability income kick in in such a case. Would there be circumstances where a person is able to fulfil the ADLs but yet cannot work in his/her occupation? Also yes, and it is in such scenarios only disability income can provide income replacement.

Why you have never been recommended this before

If it’s such an important form of coverage, how come most agents are not recommending this?

If you want a savings plan or ILP (both policies I do not recommend), virtually every insurer would happily offer them we were. When it comes to disability income insurance, only a small number of insurers in Singapore provide this coverage. Three, to be specific, and they are AIA, Aviva (now Singlife with Aviva), and Great Eastern.

I have no way to verify this, but word on the grapevine is that the profit vs risk ratio on disability income insurance is too unattractive for insurers and reinsurers to stomach.

Regardless, given that so few insurers offer this and the fact that most self-styled “financial consultants” are just salespeople, there is little surprise such policies aren’t recommended more often. No commissioned agent is going to tell you something that their insurer doesn’t carry. Even if they are able to sell disability income insurance, most don’t. Why sell this policy when other plans are more lucrative?

It is also more difficult for people to buy something they have never heard before. Things like “critical illness” and “hospitalisation” have become synonymous with insurance, and people are a lot more receptive to purchasing such policies. Disability income insurance, however, is stuck in a vicious cycle: agents don’t or can’t recommend such policies → people are unfamiliar and don’t buy disability income insurance → agents are less incentivised to talk about it.

If you think about it from a needs-based angle, disability income insurance settles the most pressing of insurance concerns a young working adult would have by insuring his/her ability to work. As a term policy, it is also much more affordable than the whole life and investment-linked policies agents love to sell. It is bad for business to sell something that does its job so well that other policies look unattractive in comparison. In fact, I know of some agents that “bundle” disability income with the ILP they recommend in order to present a more flattering angle to their clients who are none the wiser that income replacement coverage takes only a fraction of the bundle’s premium.

GE vs Aviva

The way I see it, the main competitors in this space are GE and Aviva (now Singlife with Aviva). I recommend that you watch the video for my opinion on the two.

Conclusion

Are you convinced that disability income insurance is something that is very important for a working adult like yourself? Let me know in the comments!

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