The Chances of Using Your Insurance, Part 4: Disability Insurance

It’s been a couple of weeks, and we’re well into our 5-part series where we attempt to answer the following —

“What are the odds that an everyday individual will use their insurance?”

To answer , his question, we’ll use statistics, do the math, and provide you with some valuable numbers and insights.

If you’re new to this space and want to know more, check out part one, two, and three of our series.

If not, do read on for this week’s low-down on disability insurance.

What is it?

Generally, disability insurance offers policyholders a monthly or lump sum payout in the event they become disabled in some way from illness or injury. In Singapore, there are two main types of disability plans:

1. Disability Income Insurance

• Typically provides a monthly payout for policyholders who acquire a disability while employed.
• Coverage lasts until the policyholder returns to work.

2. Total Permanent Disability

• Not a standalone insurance. Usually found as a type of add-on rider to life insurance or endowment plans.
• As the name suggests, payout is provided when the insured becomes permanently disabled.
• Once the payout is given — it is typically a lump sum that is equivalent to the death benefit — the policy will be terminated.

How much to pay?

For simplicity’s sake, we’ve combed through several disability income insurances (the most common type). To calculate a monthly amount, we’ve assumed the following:

• 25-year-old male
• Non-smoker
• $3,500 monthly salary (monthly payout is up to 75% of your salary)
• Coverage till age 65
• Policy covers partial and total disability

After comparing several insurance plans, we’ve found the ballpark amount to pay is $42 per month.

What triggers the payout?

This goes without saying: you’ll only receive a payout when you become disabled (permanently or otherwise) as a result of an illness or injury.

So, how likely will you need the disability income insurance, i.e., what are my chances of acquiring a disability in Singapore?

In Singapore, there are no official statistics on people who’ve acquired a disability.

Rather, the latest numbers include both individuals who are diagnosed with a disability from birth and those who acquired a disability later on in life.

Using those numbers, we’ve put together the following probability table:

So…is it worth it?

Well, as seen from above, the odds of experiencing a disability before age 50 are very low (2%).

THe total disability insurance you’ll pay over 25 years (from ages 25 – 50)? $12,600.

However, it’s important to note the risk of disability increases with age. As such, a person above 50 years will have a 1 in 10 chance of becoming disabled.

Furthermore, there are other crucial pointers to consider, such as —

• The nature of your job, e.g., a factory worker who handles heavy machinery may find it more necessary to buy disability insurance than an office worker.
• The payouts only replace income that is lost due to the disability. As such —
  1. If you make a full recovery and go back to work, you won’t continue to receive the payouts.
  2. If you find a lesser-paying job due to the disability, the payout will top-up the income lost. (E.g., John’s initial income is $3000. After injury, his new job pays $2000. Thus, insurance top-up is $1000.)
• For most disability income insurances, payouts are provided till age 65.

With these points in mind, the choice is now yours to decide whether the risks and various insurance criteria are worth the costs.

Disclaimer

Throughout this series, we found that the chances of utilising some policies look surprisingly small. But before you rage-call your insurance agent and demand a policy cancelation, you have to ask yourself.

“What if I’m the unlucky one?”

For some, having the peace of mind is worth its price tag.

With thesE statistics, we hope to provide you with additional information to a usually fear-driven decision.

Do Also Consider

Do you have:

• A family history of illnesses?
• A smoking habit?
• An existing health condition, such as high blood pressure?

These factors may increase your chances of early mortality, and the cost of your insurance policy.

The figures used in the article are the latest available to us. When we cross-reference datasets from various sources, the data period is standardised to the best of our ability to ensure consistency.