What is Disability Income Insurance?

“It may never happen to me.” It’s the sentiment that most employees share when it comes to disability income insurance.

Disability income (“DI”) insurance provides the insured individual with a monthly payout should the insured individual lose their ability to  work for an extended period due to accident, injury or illness.

During the period when the individual is unable to work due to their disability, they will receive income on a monthly basis, and the amount payable is pre-selected by the life insured as sum assured when they  took up the policy.

The insurer usually imposes a cap on the sum assured at a maximum of 75% of the life insured’s monthly income. The monthly income will continue up to a period of 24 months or when the life insured is able to return to work, whichever is earlier. After a period of being totally unable to perform their own occupation, the life insured will receive prorated payouts should they suffer an income loss after they return to work.

Let’s take a look at how DI insurance works:

John, a school teacher, was covered with a disability income plan with sum assured of $5,000. He got seriously injured in a car accident and was unable to work for more than a year.  His DI insurance plan paid him a $5,000 monthly income while he was out of work.  John’s severe spine injuries disrupted his ability to do classroom teaching, so he was switched to the general office instead by the school, which reduced his income by 40%. As John’s DI plan insures those who are able to work but at reduced income (termed as “partial disability”) by paying the difference between sum assured income (of $5,000) and the reduced monthly income of $3,000, John was able to receive an income payout of $2,000 from the policy.

As seen in the scenario presented above, DI insurance is designed to alleviate the financial burden of having a disability.

If you are suddenly unable to work for an extended period because of illness, injury or accident, disability income insurance can assure you that you will be well taken care of.

For more information about disability income insurance, you may connect with any of our financial advisers who will be more than happy to assist you. Stay connected to our Facebook page by liking us to be notified when the next section of this article is published.

Special thanks to Financial Alliance’s Corporate Development Director, MK Chan, and Wealth Management Director, Michelle Ee, for sharing their knowledge and experience to make this article possible.

– Written by the Financial Alliance Writing Team