The Eldershield Scheme was introduced in Singapore in 2002. It has improved along the way from a monthly benefit of $300 for 60 months to $400 for 72 months. Eldershield is categorised as a Long Term Care(LTC) Insurance and more people are aware of LTC insurance recently due to the launch of Careshield Life. And because of this awareness, a common question today is the need for Disability Income(DI) Insurance since Careshield Life is mandatory and both also provide a monthly benefit upon disability. We shall look at the similarities and differences between LTC insurance and DI insurance.
Disability Income Insurance
Disability Income(DI) Insurance, as the name suggest, is to compensate the loss of income if you are disabled from illness or accident. In order to purchase a DI insurance, you need to have an income. What this means is individuals such as housewives or retirees will not be able to purchase a DI insurance because they are not earning an income. Therefore, it is also common to have DI insurance cease at retirement age around 60 years old. The definition for an DI insurance is also often known as “Occupational disability” because the definition is base on whether the disability cause a change in occupation resulting in a drop in income.
Long Term Care Insurance
Long Term Care(LTC) insurance pays a monthly benefit to mitigate the costs of caregiving needed due to physical or cognitive disability. These disabilities are commonly known as the “Activities of daily living”. Thus, this form of disability is sometimes known as “Lifestyle disability”.
The definition for total disability in a DI insurance differs across insurance company but in general, the insurance companies will require the insured to meet the requirement of totally unable to perform the material duties of his own occupation or profession or/and any occupation or profession to which he is suited by reason of his training, education or experience. The insured must not be performing any work or engaged in any occupation or profession to earn or obtain any remuneration, whether declared or undeclared to the Company. Whereas, for an LTC insurance, the definition is if you’re unable to perform at least 3 of the 6 Activities of Daily Living(ADL). Some insurers require the insured to be unable to perform as little as just 1 of the 6 ADL.
Now that you have a better understanding of DI and LTC, which do you think is more important to you?
There are often debates on DI or LTC is ‘easier’ to claim and we shall look at a few possible scenario for each claim.
An insured is a pianist and perform in various events. In a freak accident, he lost his index finger and was not able to perform professionally again. He decided to be a piano teacher in a music school and this caused him to have a 50% cut in his income. Do you think he can claim his DI insurance, LTC insurance or both? The answer is the DI insurance will pay the benefit because he suffers a drop in his income of 50%. However, he can still perform all six activities of living so the LTC insurance will not pay.
Another insured is a teacher and teaches a group of students in a classroom. He was paralysed from his waist down after suffering from an illness and is unable to perform 3 out of the 6 activities of living. However, he is still able to move around in a wheelchair and continue his teaching in class. He also command the same income as prior to his disability. In this case, a DI insurance will not pay any benefit since he is able to do what he used to do and more importantly, there is no drop in his earnings. However, a LTC insurance will pay the benefit because he is unable to perform 3 of the 6 activities of living.
Having seen the difference between the two, you will realised that while both insurance pays a monthly benefit upon disability, it is rather different in the definition of disability. If you already have a DI insurance, the LTC insurance will complement it. Likewise, if you only have LTC, you are encourage to speak to a financial representative on DI especially if you are earning a substantial income.