(24-06-2013, 04:48 PM)yeokiwi Wrote: [ -> ]The probability of death at income generating age is higher than disability. That probably explains why the disability income premium is not high despite the high payout.
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In short, you are more likely to die than being disabled. But, disability costs more to the dependents if it happens.
I have a different view.
Dying is a subset of disability (from sickness or physical trauma). Therefore the odds of disability are much higher than death. You can get disabled without dying. It's hard to die without passing through the "disabled" stage, however temporarily.
A simple example: you are involved in a car crash. What the odds of you:
1. Being unharmed?
2. Being injured but alive?
2. Being injured and dying?
That should make it clear that the odds of disability are higher than death.
Disability income premiums are not high because most people are not injured for prolonged periods of time, usually they recover and go back to work. So the insurer usually doesn't pay more than a few months of lost wages.
Back to the car crash example, if you broke an arm or a leg you'd be out of action for a few months, then you go back to work. If the waiting period is 90 days, and you're back at work within 90 days, the insurer doesn't have to pay a cent.
It is not common that you are completely disabled and the insurer has to pay until you are 55 (or whatever age the policy expires). If you suffer such heavy injuries, your odds of survival are not that great, and if you die the insurer is off the hook (once you die the policy expires).
Use the right tool for the right job. Use term policies to help your family take care of your dependents (pay for kids etc). Use disability income to help your family take care of YOU. A good hospitalization and surgical policy (like a maxed-out Shield plan with a rider) can cover a lot of the medical bills. But for outpatient expenses like a wheelchair, a maid, or taxi transport, you are on your own. Regular checkups might or might not be covered, I haven't checked in a while. Seeing a GP is affordable, seeing a specialist is not.
If the disability income plans are unattractive, then self-insure - put aside funds for such purposes. You could probably keep 1-2 years of such expenses in cash, and invest the balance. If something happens, your family can slowly liquidate the investments to pay for your care. If nothing happens, there's extra money for you and your family to enjoy later on.