When you are planning to ringfence your assets/finances from adverse events, the two most common insurances that come to mind are Life Insurance and Health Insurance.
Life Insurance provides compensation to the family if you are not around. An adequate life insurance cover safeguards your family should ideally cover all your outstanding loans, provide for financial goals and family’s regular expenses.
Health Insurance prevents a hit to your finances in the event of hospitalization (of any of the family members).
However, have you ever thought what a disability might do to your finances?
If you get disabled in an accident, life insurance will not pay since you are still alive. Health insurance will pay only so long as you are in the hospital.
Not just that. A permanent disability can compromise your earning potential. Additionally, your own expenses may increase due to nursing care and physiotherapy.
How do you guard your finances and wealth against such as event? You do that by purchasing disability insurance.
The extent and duration of disability may vary
Firstly, the disability could be due to natural causes or due to accidents.
As I understand, disability due to natural causes is not covered by any insurance plan. A few critical illness plans may cover it.
In this post, the focus is on accidental disability i.e. how do you guard against disability resulting from an accident.
An accident can result in injuries/disability of varying nature.
Temporary disability: You are expected to recover in a few months (say fractures)
Partial Permanent Disability: Loss of 1 limb, loss of eye-sight in 1 eye, loss of hearing ability etc.
Total Permanent Disability: Loss of two limbs, loss of eye-sight in both eyes etc.
Honestly, I wouldn’t worry much about purchasing coverage for temporary disability. You should have enough emergency corpus to tide over such temporary crisis.
However, you may need coverage against permanent disability.
How much disability insurance do you need?
This is a bit tricky. If a disability can compromise your ability to earn completely, then there is no reason why disability insurance cover should be less than your life insurance cover.
You also need to see how disability can affect your earning ability. And this will depend on the nature of your profession.
For instance, if you have a desk job, you may still be able to perform with a partial disability (or perhaps even with total disability). Therefore, your ability to earn may not be affected as badly.
However, if you have a field job or that requires greater physical effort, a disability may affect your earning potential severely.
In my opinion, your disability insurance coverage should be at least as much as your life insurance coverage.
You are the best judge.
How do I purchase disability insurance cover?
There are two broad ways to purchase accidental disability cover:
- As a rider with your term insurance plan (covers only permanent total disability)
- A standalone personal accident cover (covers accidental death, temporary total disability, permanent partial disability and permanent total disability)
You can see the extent of coverage is much lower in case of a term insurance rider. It covers only permanent total disability. Therefore, you can expect the cost of this rider to be much lower.
On the other hand, a standalone personal accident cover (accidental disability cover) is way more comprehensive. In addition to temporary and permanent disability, even accidental death is covered.
Therefore, it is a bit expensive too. Another point to note is that the premium does not depend on your age but on your profession.
If your profession subjects you to greater chances of accidental injuries, the premium will be higher. Therefore, you can expect the premium for a doctor to be lower than that for a builder.
You can check the premiums on general insurer’s websites. Here is the link to premium calculator page on Apollo Munich website.
What should you do?
Firstly, we need to understand that claim settlement under disability insurance covers may not be as objective as term life insurance covers. You can go through policy wordings of any of the policies to understand what I mean. My post on personal accident plans also covers such aspects.
However, accidental disability poses a risk to your financial planning and there is no other way to cover such risk except by purchasing a disability insurance plan.
You can do that by adding a disability rider to your term plan or by purchasing a standalone plan.
In fact, you can take both to reduce the cost of disability insurance.
A disability rider with the term plan is cheaper and can provide financial protection against permanent total disability at a lower price. And that’s where the greatest risk lies for most of us.