Tan Kin Lian's Blog: Disability income insurance

Wednesday, October 17, 2007

Disability income insurance

Hi Mr Tan,

I've indeed learnt a lot about financial planning via your blog. Thank you very much for your valuable advice to all the readers.

Is it advisable to have critical illness coverage against the 30 major illness or is it more important to buy disability income insurance?

REPLY

Unfortunately, most insurers do not provide disabilty income insurance on competitive terms.

So, you should buy a critical illness cover. I think that $50,000 is sufficient. The insurance agent will try to get you to buy more, especially a whole life policy.

Try to ask them to give you a critical illness policy that stops at 60. Beyond 60, you have sufficient savings (by saving through an investment fund, to take care of your medical needs.

Read the FAQ in my website, www.tankinlian.com/faq

5 comments:

Anonymous said...: I'm also deciding on buying a critical illness plan. Currently I have a life policy and my total sum assured for critical illness is $110K. I was advised by my financial agent that I need a total of about $260K worth of coverage for critical illness & asked me to top up another $150K by buying a term policy with a $2K annual premium where I could choose to stop paying the premium at age 50 or any age beyond 50. From your comments, it seems that I'm quite sufficiently covered. So does it mean that I do not need to buy another critical illness plan? Can I use this plan as my retirement plan since it's an investment linked plan with the cashback component built in? Thanks!; October 17, 2007 6:08 PM
Anonymous said...: Hi

I wish to add a viewpoint on Mr. Tan's blog. With due respect to the blog owner, I suggest readers to take proper financial advice from qualified financial practitioners.

If anyone can qualified to give financial advice, then we do not need the Financial Advisors Act.

I do visit Mr. Tan's blog for his insights into various areas, not just limited to insurance and investment but in my personal view, before putting a figure on how much a personal need for coverage, you need to conduct a proper financial analysis.

I have friends who do not invest extensively, who do not have a lot of assets, and happened to be a normal hardworking people working from 9am to 8pm and with kids. I think it is not appropriate to dispense a sweeping statement to undermine the value of good coverage - at least add a disclaimer to protect yourself legally.

I am concerned that if a person really falls victim to major illnesses, would you want to be held responsible because of your "advice" - and that fella said - "I follow that advice from so-and-so website" and now I have no money and need to appear in newspaper to ask for public donations?

In other countries, I understand that there is liability on advising - if the person already indicated that he/she needs this amount (after doing a financial analysis) and advisor implemented insufficient, the bereaved family can sue.

Just sharing in good spirits.

Cheers; October 18, 2007 11:08 AM
Tan Kin Lian said...: In my view, $50,000 in critical illness coverage is adequate for most poeple.

Most illnesses do not cost a lot of money to treat, especially if you have access to subsidised wards in Singapore.

If you need more than $50,000, you can draw down on your savings from other sources (espeically as you have put some of these savings into other more productive assets, and not overcommit to the low return, critical illness policy).

Invest in other sources, and get a better return for some of your savings.

Many financial adviser will want you to spend a lot of money on critial illness policy. Ask them the following:

1. What percentage of people make a claim?
2. What is the average cost of treating the illness (not just an isolated case)
3. How much commission do they earn by selling a big critical illness policy to you.; October 18, 2007 11:13 PM
Anonymous said...: Yes 50K and supplemented by an H&S may be sufficient for treatment but what about the loss of job due to the illness? Most companies would not keep you; some may dismiss you with a 6 month gratuity. In the meantime the family expenses are still around; and you can draw on your saving if you have. To insure against this event the rule of thumb is 3-5 years of annual salary. It is affordable if you go for term insurance and you will be adequately covered. The problem is insurance agents like to recommend whole life and frighten you that if you don't have one when you are old it is going to be a problem.There is no problem when you don't have one. The problem is having one at this age because a huge amount of money is used to pay the premium , which could be invested more efficiently in an investemnt.At this age it is self insurance.
Never get an insurance agent to help you in this matter. The likelihood they will sell you a high commission CI cover.Most agents are unscrupulous.; October 19, 2007 11:08 AM
Anonymous said...: Just add to Mr. 11.08am, most insurance agents will conduct need analysis, not clients' but their own need analysis. That is why majority of singaporeans are under covered. How many people have the means to
cover adequateley with cash value insurance? but that is favourite with insurance agents. Hope the public will wake up to know thier right and take the agents to court especially the bereaved family.
I was shocked by one agent when she told that she was proud that she wa able to deliver a chegue to the bereaved family at the wake.When asked on the amount she said $20K.
In my mind it was good enough to send off the death but what about the living? This agent deserved to be sued for not doing a good job.; October 19, 2007 12:04 PM