I used to believe that insurance was made for people with liabilities (unpaid student and mortgage loans) and dependants (aging parents and children). If I am a self-reliant individual, and my parents have sufficient retirement funds, what’s the need for life insurance?
If I just dropped dead right now (I’m 28), the CPF-enabled Dependant Protection Scheme pays out S$70,000 for my demise. That should be enough to cover my funeral.
Scenarios where I would need life insurance
In my mind, I would get a life insurance policy only when I have liabilities and/or dependants.
- I have a huge mortgage loan of S$400,000 in me and my partner’s name, and I would not want him to have to bear that burden alone if I suddenly died.
- My parents lost their retirement funds and now rely on me financially.
- I have a child that I hope to support until he/she goes to university.
- I am the sole breadwinner of my household.
The first scenario seems the most likely to happen in the short term. When I eventually get to that significant milestone, then I’ll take life insurance seriously.
The missing link in life insurance – Total and Permanent Disability Coverage
My father is not a strong believer in all things insurance, but he recently told me to think about the second clause of what a Life Insurance Policy covers – Total and Permanent Disability (TPD).
In all the situations I’ve illustrated above, none take into consideration what happens to me if I become disabled. I always felt I was more likely to die than to suddenly be disabled, so I never really analysed what TPD covers in detail.
I decided to look further into this. If I lose the ability to earn an income because of Total and Permanent Disability, that means I go from being a breadwinner to being a dependant, overnight.
This is very troubling, that means the S$70,000 pay-out that I thought would be fine for my funeral would not be enough to cover the cost of treatment and out-patient care for the rest of my life. My parents would then have to take on the burden of paying for my care, and this may lead to them working into their retirement years to care for me.
A closer look at total and permanent disability (TPD)
There are two types of TPD – Presumptive and Occupational. All insurers cover Presumptive TPD, but not all of them cover Occupational TPD (each insurer may cover this to varying extents). Let’s take a look at what they mean:
- Loss of both eyes
- Loss of both hands
- Loss of both feet
- Mix and match the above. One from each category with at least two in total. Example: One eye and one hand, one hand and one foot, etc.
Disruption to the Activities of Daily Living:
There are other ways you can be deemed as having TPD and that is due to a disease, illness or injury that causes you to not be able to perform at least three activities of daily living, even with special equipment. You would also need the assistance of another person to aid you for at least six continuous months.
- Transferring: the ability to move from the bed to a chair
- Mobility: the ability to move around on a leveled surface
- Toileting: the ability to use the restroom and all hygiene practices
- Dressing: the ability to wear and remove clothes
- Washing: the ability to get in and out of a shower and use it
- Feeding: the ability to feed on prepared food
Occupational Total Permanent Disability can be defined as the inability to perform any form of work for at least six continuous months.
Something to ponder about life insurance and TPD
After research on the definitions of TPD, it made me realise that this coverage is essential. it is important to take the necessary precaution of having a life insurance policy even if you do not have dependents or liabilities. This is so that you don’t inadvertently become dependent on others.
The premiums, while you are younger, are a lot lower than at a later life stage, so start asking questions and finding out more about life insurance.