Do You Really Need to Have a Disability/Personal Accident Insurance Cover?

by Vinaya HS on January 14, 2011

in Finance

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I listed purchasing a disability/personal accident insurance cover (for both D and myself) as one of my personal finance goals for 2011. I thought I had my thinking done with but the comments to that post got me thinking deeper. Primarily, the two questions to be answered now were:

  • Do we really need disability insurance cover?

  • If yes, how much?

A few basic thoughts to begin with:

Why do you need disability insurance?

You’d need disability insurance to help meet your monthly expenses since your ability to earn a regular income could be hampered were you to become partially/totally disabled.

When do you need disability insurance?

You’d need disability insurance when you become partially/totally disabled and your income (from whatever sources) isn’t adequate enough to meet your monthly expenses.

Now, how much disability insurance cover do you need?

I came up with a simple mathematical model – you can download the spreadsheet template here.

DI_Calculator

Note: The amounts shown are arbitrary in nature.

I ran the numbers on our situation and have come to the following conclusions:

  • Given our lifestyle, we certainly do face the risk of a disability-inducing event occurring.

  • We do need a fair amount of disability insurance (somewhere in the low seven-figures) since our passive sources of income aren’t yet adequate to meet the estimated monthly expenses.

  • Since both D and I work, I’ll buy a policy only in one of our names – this would cover us even in the worst scenario. But I plan to defer this purchase for some more time in order to let these thoughts percolate through my mind.

It’s seriously tough to think and plan ahead for such morbid situations.

What do you think of this approach?




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{ 6 comments… read them below or add one }

pattu January 14, 2011 at 7:58 PM

“It’s seriously tough to think and plan ahead for such morbid situations.”

Cant agree more. Impossible for 20-somethings to think along these lines unless they have children. I would say this is key to true financial independence.

Heath insurance for parents should be a no-brainer to them. When my father was detected with cancer with no insurance cover my mother pushed me to get herself a mediclaim. Six months after she got the policy she got diagonized with Parkinsons. Morbid food for thought for your parents!?

Vinaya H S January 15, 2011 at 9:24 AM

@pattu:

You’re so correct. D often chides me for thinking as if the world’s going to end the very next morning!

nagaraj 9840047520 nagarajvlic@gmail.com May 1, 2012 at 8:26 AM

donot confuse better you take your eligible cover 72 month income is your target.

Prithvi June 25, 2012 at 4:41 PM

Vinaya,
While such thoughts are morbid, witnessing accidents whilst driving on the highway have convinced me that they are certainly necessary!
Did you finalize on a disability insurance? If so, which one and why? Did you consider the other offerings from TATA AIG, such as “Accident Guard,” the “Income Guard,” and the “Secured Income Plan?”
I ask as I’m also thinking about getting a disability insurance. If I were lose my sight, for example, I wouldn’t be able to work as I do now and could possibly become destitute!

Vinaya HS July 9, 2012 at 6:52 PM

@Prithvi –

My earlier attempts at trying to extract information from TATA AIG were quite futile. Have you had any luck?

s k mishra November 8, 2013 at 10:59 PM

i want to close my two leevan anand policy premium @RS 37135 EACH SA 5 LAC each to pay home loan emi. please tell me how much i will get closure amount also at the time of maturity if i continue the policy

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