When you ask people if they heard of Disability Income Insurance (DII), you might just get their confused faces as an answer.
They usually assume that the definition of disability for all life insurance products is the same with theTotal and Permanent Disability (TPD), which practically all of them have in coverage. But that’s not true at all.
Many people have different TPD upgrades (also known as riders) in their insurance policies, such as Enhanced TPD and Deferred TPD, although they may not fully grasp what these do for them. And these supplements are definitely not the same as the claim definition of disability in a Disability Income plan.
These riders often discuss how the benefit will be paid out, such as how many installments will be made and over how many years. It may be a lump sum in some instances. Insurance companies have also set a limit on the total aggregate payout for TPD at $X million (thus buying more than you need may not be a wise idea).
Yes, you are covered by TPD, but what are the chances that your claim will be approved?
What does total and permanent disability (TPD) mean?
Disability Income Insurance (DII), also known as Income Protection Insurance or Disability Insurance, is a type of insurance policy designed to provide financial support to individuals in Singapore if they become disabled and are unable to work due to illness or injury.
This insurance helps replace a portion of the policyholder’s lost income during the period of disability, ensuring they can still meet their financial obligations and maintain their standard of living.
You must first comprehend the distinction between TPD and the disability criterion used for Disability Income Insurance.
The term “total and permanent disability” (particularly in older life insurance plans) means:
- Total and irreversible loss of sight in both eyes or loss of sight in one eye and loss by severance of a limb or loss by severance of a pair of limbs.
- This seems like a very difficult requirement to meet. On the other hand, some insurers go beyond only “physical severance” and define “loss of use.”
Here are some key points to know about Disability Income Insurance (DII) in Singapore:
Coverage:
DII policies typically provide coverage for a specified percentage of your pre-disability income. The exact terms and conditions can vary among insurance providers, so it’s important to carefully review the policy to understand what it covers.
Benefit Period:
DII policies also specify the duration for which benefits will be paid if you become disabled. This period can vary, but it’s common to see benefit periods ranging from two years to age 65 or even for life.
Waiting Period:
Most DII policies have a waiting period, also known as an elimination period, during which you must be disabled before benefits become payable. The waiting period can range from a few days to several months, and the length of the waiting period can affect the cost of the policy.
Premiums:
The cost of DII premiums can vary based on factors such as your age, health, occupation, and the amount of coverage you choose. It’s essential to compare different policies and premium options to find the one that best suits your needs and budget.
Tax Benefits:
In Singapore, premiums paid for DII policies may be eligible for tax relief under the Supplementary Retirement Scheme (SRS). However, tax regulations may change over time, so it’s advisable to consult with a tax professional for the most up-to-date information.
Claims Process:
To make a claim, you typically need to provide medical evidence of your disability and meet the policy’s requirements. It’s essential to understand the claims process and keep all necessary documents organized.
Riders and Additional Coverage:
Some insurers offer optional riders or additional coverage options that can enhance your DII policy. These may include features like cost-of-living adjustments, partial disability benefits, and more.
Comparison Shopping:
It’s crucial to compare DII policies from different insurance providers to find the one that best fits your needs and budget. Consider factors like coverage, waiting periods, benefit periods, and premiums when making your decision.
So what is the definition of disability in the Disability Income Insurance (DII)?
DII policies will have a specific definition of what constitutes a disability. This definition may vary between policies, but generally, it covers disabilities that prevent you from performing the duties of your own occupation or any occupation, depending on the policy.
The DII definition of disability places a strong emphasis on an individual’s capacity to carry out the practical obligations of their occupation. The various types of disability and the accompanying severity levels are listed below:
1. Own Occupation
-inability to perform the material duties of own occupation.
2. Own or similar occupation
-inability to perform any occupation suited by his or her training, experience or education.
3. Any occupation
-totally and permanently disabled and unable to engage in any occupation whatsoever.
Analysis of the severity levels
- As you can see, “own occupation” and “any occupation” mean very different things. The latter describes a circumstance in which the person is unable to carry out any work in order to support themselves.
- When a person cannot work at all and their condition is determined to be permanent, or if they lose the use of two or more of their limbs or eyes (severity level 3), TPD coverage is available.
- For severity levels 1 and 2, you do not need to lose an arm, a leg, or your eyes to receive compensation. The monthly benefit will be paid to you as long as your illness or accident-related disability prevents you from working to earn a living (the insurer will use its own calculation to determine your maximum monthly income benefit). Insurance companies typically do not disclose their claim figures, but one did: in the month of December 2009, there were $9,294,074.00 in total claims for life insurance, of which $265,138 were paid out as a result of TPD. This only amounts to 2.9%!
Additional considerations for disability income plans
- Some plans also cover partial disability, which means you can work again with less capacity since your health has improved (eligibility for benefits is determined by a formula unique to each insurer).
- Only 4 insurers provide this policy, thus benefits, terms, and conditions do vary amongst them. Before committing, make sure you fully understand them.
- Some forms of disability income insurance are offered as independent policies, whereas others are added as riders to a primary policy.
Conclusion
Since not all insurers offer DII, and for obvious reasons, insurance brokers prefer to sell whole life, endowment, and ILP policies, there is less knowledge of DII than there is of other life insurance products. So, we would advise our readers not to be duped by “fancy” TPD rider names and to seek experienced financial advice to safeguard your best interests.
Before purchasing a Disability Income Insurance policy in Singapore, it’s advisable to consult with a financial advisor or insurance agent to ensure you choose the right coverage that aligns with your specific circumstances and financial goals. Additionally, always read the policy documents carefully to understand the terms, conditions, and any limitations of the coverage.