Why disability insurance is just as important as life insurance

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Kavitha Menon | 
Disability, partial or complete, due to accident or illness, makes it impossible for a person to continue earning as he or she did before the unfortunate accident or illness. In financial planning lingo, both death and disability mean loss of income. This loss of income needs to be covered using insurance.

While most do have life cover, we cannot be completely assured of our families' financial safety without a complete disability cover.

How much disability cover do we need? A cover equivalent to life cover is needed. The product should give a lumpsum amount, equivalent to sum assured, should one be unable to work productively in case of a physical or mental disability. Surprisingly there seems to be a huge lacuna in the product offerings from insurance companies in this space. Not only is there a lacuna there is also a lot of confusion on what such a product would offer. Disability insurance is not the same as accident cover. An accident cover protects against loss of life on death by accident and certain specific disabilities. Many diseases like Parkinson's or Alzheimer's can leave you incapable of a productive life without any loss of limb or eyes (as covered in many policies) and hence any disability that reduces or stops earning ability should be covered. Reading the product inclusions and brochure should give one a clear idea of the product offerings.

Almost all covers in the market are offered as riders with medical or life insurance. Yet the riders grossly undermine the extent of the insurance required. This is because in, most life insurance policies the premium on disability insurance cannot exceed 30 % of basic life cover premium. Thus if a 32 year old were to take a 20 lakh policy that cost Rs. 4000, he probably will not be able to buy disability cover for more than say 7 lakh, the premium of which is around Rs.1000. That would mean that you would be buying only a third of your actual requirement of disability cover.

For those looking for disability cover, buying riders with life covers along with a continuation of premium payment rider is the best bet. This combination will ensure protection in case of disability and, continuation of life cover without the need of paying further premiums in case of disability.

Like all other insurance covers,the term of a disability insurance policy should only last till such time that your savings/assets adequately cover your financial goals. Once you have accumulated sufficient corpus for goals you can discontinue disability insurance. Also one must aim to replace medical/disability and critical illness covers with adequate savings in the long run. What this means is that a 5 lakhs savings allocated towards medical bills is better than a 5 lakh medical cover. The reason for this is that the cost of premiums will rise with not just inflation but also with your age while the cover itself will rapidly lose value due to inflation. That is a double whammy you can avoid by savings towards a medical fund.

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