Many people buys disability insurance thinking it is a good plan. What they don’t know is that the definition of disability is very strict. Normally this is referred to as “Total and Permanent Disability” or TPD for short. They come in various names like “Permanent & Total Disability”, “Enhanced Disability”, “Deferred Disability”, etc. The various names also indicate how the payout going to be. Some will only start paying at the end of 5th year and others start paying at the end of 10th year. Others would pay a single lump sum while others pay installment over 3 years. Many would cap the total payout to $x million in aggregate of all insurance policies bought by the policyholder (not necessary from the same company). Many of my clients bought this kind of plans from other financial advisers thinking it is good. Some say they will be compensated every year if they have disability. But a check shows they have bought into a TPD plan which pays an installment. So what is the claim statistic for TPD?

Unfortunately many insurers do not disclose the full details but NTUC Income is very transparent. For the month of December 2009 , there was a total claim settled of amount $9,294,074.00 for life insurance. Out of which only $265,138.00 was TPD. This means only 2.9% of the amount is due to TPD. In terms of numbers, there was 193 life assured who had a successful claim from the insurer. However, only 12 or 6.2% was due to TPD.

Most people are confused between Enhanced TPD and Disability Income. Disability Income insurance is a totally different animal altogether. Many financial advisers sell Enhanced TPD giving the impression to their clients that it is a Disability Income and thus providing their clients a false sense of security.