Disability Insurance

Table of Content

1. How Disability insurance Works?

2. What are the Types of Disability insurance Plans in India?

3. Eligibility Criteria for Disability Insurance

4. Why You Need Disability insurance Coverage?

5. A Real-Life Example of Disability insurance

6. Where to Get Disability insurance Coverage?

7. How to Buy Disability insurance?

8. What Disability insurance Covers?

9. What is the Claim Process for Disability insurance?

10. What is Not Covered in Disability insurance?

11. What are the Benefits of Disability Insurance

12. Disability Insurance vs In-Built Cover

13. How to Choose the Right Disability insurance?

14. What are Some Key Disability Insurance Terms?

15. FAQ’s on Disability insurance

Disability insurance provides a lump-sum payout or a monthly income stream as benefits if its policyholders become partially or fully disabled due to an accident or illness and cannot work to earn.

Hence, it not only acts as insurance but also serves as a replacement income source for an insured individual, enabling them to maintain their lifestyle, cover everyday expenses, and meet financial responsibilities even if they cannot continue working for a regular income.

Here, you may ask how disability insurance is different from health insurance. For this, suppose an individual, due to an accident, incurred a spinal injury which leaves him with a permanent disability.

Here, with health insurance, this individual receives ₹3 lakh in treatment costs under their policy terms. However, a disability insurance policy in this case may provide a monthly income of ₹ 25,000, typically until their retirement age, depending on its terms.

How Disability insurance Works?

Now that you know what this policy means, you must note how it works:

1. Purchase and Premium Payment

You can buy a standalone plan or buy it as a rider with a health or term insurance plan. You must pay the premium for a standalone plan individually or with the premiums of health or term-life insurance.

2. Cover for Accidental Disability or Critical Illness

If, due to an accident or a serious illness, you become disabled, you or your family members must file a claim with the appropriate documents.

3. Waiting Period

Most policies include a waiting period between the occurrence of disability and the start of benefit payouts. Longer waiting periods may reduce premium costs.

4. Claim Payout

Depending on the type of disability, you get a certain type of payout and benefits. For example, with long-term disability, depending on your chosen option, you get a lump-sum payout or regular income.

What are the Types of Disability insurance Plans in India?

Depending on the insurer, there are mainly two types of insurance that cover an insured's expenses for a short or long timeframe. Here is its detailed view:

1. Short-Term Disability insurance

Such an insurance is designed to cover a portion of your income in case of your inability to work due to an illness or an accident for a certain duration. However, the time limit for such a cover may vary, but it usually provides financial safety for 6 months to 12 months.

2. Long-Term Disability insurance

A long-term disability insurance policy is designed to cover an insured individual’s expenses if they become unable to work due to a serious disease or injury and are unable to work for years. In such cases, an insured individual typically keeps the policy until their retirement age (i.e., 60) or until they recover and can resume working.

Eligibility Criteria for Disability Insurance

To avail a disability insurance in India, you must note that there are certain eligibility criteria that you must meet. Here is a detailed breakdown of them:

• Age: An individual aged 18 can purchase this insurance, and the maximum eligible age is 70. While the minimum age cannot be below 18, the maximum age may range from 50 to 70 years, depending on the insurer.

• Employment Type: This insurance is available to salaried professionals, business owners, and self-employed individuals.

• Nature of Occupation: Depending on the insurer, eligibility criteria, especially for high-risk jobs, can be stricter, and premiums may be higher as well.

• Criteria for Income: To determine your insurance’s base coverage and premiums, you may need to meet the minimum income criteria set by insurers.

• Medical History: Insurers may ask for an evaluation if you have any Pre-Existing health conditions, earlier surgeries, chronic illnesses, etc. Some conditions may result in premium loading or exclusions.

• Coverage Requirement: Some insurers in India may offer a standalone disability insurance. While others may offer it as a rider, i.e., you must already hold a health insurance plan to avail of this type of insurance.

Why You Need Disability insurance Coverage?

You need disability insurance, as unforeseen accidents or a long-term ailment may cause a temporary or permanent disability. As a result, if you become unable to work, without insurance, you struggle to deal with your treatment and your daily livelihood gets impacted:

1. Income Replacement Support

As per expert surveys, there are 5 to 7 lakh people in India who suffer every year from permanent or temporary disabilities due to crippling diseases or a sudden accident. Here, an insurance coverage for disability protects you from any financial struggle that you and your family may face.

Such insurance provides either a lump sum payout or a periodic income depending on the type of your disability.

2. Family Financial Protection

Whether an individual becomes disabled due to an accident or a disease, if they are the sole earning member of their family, it can leave a major impact on their dependents. Whether you choose a short-term or a long-term insurance for disability, they protect you and your dependents.

By using periodic or lump-sum payouts, your family can cover daily living expenses and pay for financial obligations like loans.

3. Loss of Earning Capacity

A disability caused by an accident or ailment, especially if it is long-term, may put you in a position where you cannot earn for months or even years. As your treatment starts eating up on your savings, it further impacts the goals that you have set for your family. Suppose, as a parent, you plan to provide higher education for your children.

However, an unforeseen accident and its consequent disability hinder this plan. According to the Hindu, annual inflation in education is between 8% and 10%. Thus, with disability insurance, you still may continue your plan for children’s education by adding funds from the payout you receive.

4. Early Purchase Benefits

As you can buy this insurance as you hit 18, you should opt for it early, upon being employed or having a stable income stream. If you buy such an insurance policy at an early age (e.g., before 30), it increases the likelihood of enjoying longer coverage at a lower premium. Also, chances of availing better coverage may increase.

5. Add-On Coverage Options

Depending on the insurers in India, you may customise a disability insurance with add-on benefits. These typically include accidental hospitalisation coverage, critical illness rider, sum insured improvement, etc.

A Real-Life Example of Disability insurance

Ravi, a 30-year-old individual who earns ₹50,000 per month. He meets with an accident, and in a temporary disability scenario, he is unable to work for 3 months. It leads to an income loss of ₹1.5 lakh. However, as he has disability insurance, his policy pays ₹40,000 every month. This covers ₹1.2 lakh and helps him manage daily expenses.

However, in a permanent disability case, as Ravi loses his ability to work entirely, it results in a long-term loss of income. Suppose his policy provides a lump sum payout of ₹10 lakh, and he and his family can use it to cover medical costs, daily expenses, and future financial needs.

Where to Get Disability insurance Coverage?

To add a financial safety net due to uncertainties, you can buy a disability insurance policy in India through the following primary sources:

1. Individual Policies

Insurance companies across India typically offer insurance policies for disabilities due to accidents or ailments, with a monthly or lump sum payout option, depending on the type of disability. Insurers also may offer this insurance as a rider with a primary health insurance plan.

2. From Employers

A few employers in India may provide disability insurance , typically in the form of Group Personal Accident Insurance (GPA). Such covers provide financial assistance due to an injury or disability resulting from an accident.

3. Government Schemes

In addition to individual or employer-funded plans, certain government schemes help people with disabilities. Some of these are Niramaya Health Insurance, Indira Gandhi National Disability Pension Scheme (NSAP), etc.

How to Buy Disability insurance ?

You can buy disability insurance easily, mostly online, from insurance providers across India. For this, follow this step-by-step guide:

Step 1: You must first assess your needs, i.e. the income replacement amount that you want and the tenure. Note that insurance providers typically cover 60% to 80 % and even 100% of your salary.

Step 2: Visit the portal of a reputed insurance provider in India and compare different available plans.

Step 3: While comparing, decide whether you want to buy a standalone accidental disability or a critical illness insurance policy. You may also opt for a disability rider added to a health insurance policy.

Step 4: As you choose one policy and proceed with the purchase, submit the required documents such as your identity, address, income proof and other required documents.

Step 5: Be transparent about your medical history, as you may need to undergo a medical test upon submitting an application. Here, transparency may help prevent application or claim denials.

Step 6: Review the policy terms, including its inclusion and exclusion criteria, any waiting period, etc., and make the purchase using the available payment modes.

What Disability insurance Covers?

A disability insurance typically covers physical disability, depending on its severity. Based on the range of benefits by insurers, such policies may cover any or all of the following types of disabilities:

1. Short-Term Disability

This type of disability applies when an individual is bedridden due to an accident or illness for some time, and they are unable to work. Depending on the insurer, insured persons may also receive weekly cash benefits while they recover.

2. Partial but Permanent Disability

When an individual permanently loses a limb or the function of a sensory organ, it is categorised as a partial but permanent loss. In such a scenario, an insured person may receive 50% of their earnings covered.

3. Total Permanent Disability

If an individual loses the function of two or more limbs, it becomes a total permanent disability. This is one of the standard covers under a disability insurance and may provide up to 100% of the benefit amount.

What is the Claim Process for Disability insurance ?

The claim process of an insurance for disability is almost similar to that of a health insurance. However, there are a few exceptions and here is a clear breakdown of its claim process:

1. Inform Your Insurer

As soon as possible after an accident or diagnosis of a major illness, you or your family member must inform your insurer about it.

2. Document Submission

   a) Disability Certificate issued by appropriate Authority

   b) Leave records for past 6 months from the Employer

   c) Copy of Hospital/ Clinic case paper and Treatment reports

   d) Original Policy Document

   e) Identity and Address Proof

3. The Beginning of the Claim Process

As you submit those documents, your insurer will begin the claim process, and typically it takes about 30 days after raising a claim. However, depending on insurers for a few permanent disability, there may be a monitoring period of 12 months after which a policyholder starts getting the benefits.

What is Not Covered in Disability insurance?

Now that you know the types of disabilities it covers and its claim process, you should note some typical exclusions. Noting these may prevent any last-minute surprise:

1. Self-Inflicted Injuries

A key or important exclusion is that such insurances do not cover injuries that an individual does to themselves. It means any injuries they obtain with the intention of harming themselves are not covered under such policies.

2. Disabilities During an Exclusion Period

If you sustain an injury leading to a disability due to an accident, or the disability is due to an ailment that is within the exclusion period, you may not be able to claim its benefits.

3. Injuries Due to Adventure Sports

One of the key exclusions of a disability insurance is that you claim it if you sustain an injury leading to a disability due to participating in adventure sports. These typically involve mountaineering, skydiving, scuba diving, etc.

4. War or Conflict Situations

Depending on insurers, such policies also exclude war or conflict scenarios as the reason for a disability. It means if an individual becomes disabled due to a war, terrorism, civil unrest, etc., such policies may not cover such situations.

5. Illegal or Criminal Activities

If an individual gets injured due to their participation in riots, industrial disputes, strikes, or any criminal or illegal activity, such policies do not provide coverage.

6. Disabilities During Incarceration

Such insurance policies also do not cover injuries sustained or disabilities which may occur as a result of incarceration.

What are the Benefits of Disability Insurance?

Aside from acting as a replacement for a regular income, this type of insurance has the following benefits:

1. Coverage for Various Disabilities

Insurers typically provide a disability cover not only sustained from an accident but also due to a creepling disease or a chronic medical condition. Hence, it ensures financial protection for policyholders against sudden incidents and also for long-term health conditions.

2. Flexibility in Benefit Period

You can choose a short-term cover for temporary disabilities. Also, you can opt for long-term coverage, which may last until your retirement age.

3. Additional Riders

You can enhance your coverage through riders. Insurers typically offer riders such as accidental death benefits, disability waiver of premium, etc., providing financial relief to you and your family.

Disability Insurance vs In-Built Cover

As insurance providers usually offer both standalone and in-built disability covers, you may get confused while choosing. Here are some of their key differences:

How to Choose the Right Disability insurance?

Here are some useful tips that you must note before you opt for such an insurance for better decision-making:

1. Selecting the Sum Assured

Assess your and your family’s needs, your income level, and prevailing expenses and choose an appropriate cover amount. While choosing the insurance for disability, try to secure a sum assured covering at least 60% to 80% of your after-tax earnings or salary.

2. Types of Disabilities Covered

Check whether a plan covers a short-term, partial but permanent disability or total and permanent disability. Go for the one which covers the maximum types without charging an excessive premium.

3. Understanding Disability Definitions

Read the policy brochure of a disability insurance and understand what its insurer classifies as a temporary or partial, but permanent and total and permanent disability.

4. Checking Policy Exclusions

You must check for exclusions and understand where you are covered and where you are not.

5. Reviewing Policy Terms

To ensure you understand the specific payouts for partial or permanent disabilities, it is vital to review your policy documents thoroughly. They detail exactly how much compensation you are entitled to receive.

What are Some Key Disability Insurance Terms?

Here are some key terms for insurance for disability that you must note for a better understanding:

1. Definition of Disability

It is one of the crucial terms in such insurance plans, and it determines your eligibility to get its benefits. As you have seen earlier, it can be total but permanent, partial but permanent and short-term, which insurers consider when assessing your condition and processing the claim.

2. Elimination Waiting Period

It means the time period between when an insured individual becomes disabled and when they start receiving the insurance benefits.

3. Benefit Period Duration

It is the highest time period a policyholder can get their insurance benefits for their disability.

4. Waiver of Premium Benefit

This is an optional add-on available for your disability coverage. It waives your future payment obligations if you experience a lasting disability.

FAQ’s on Disability insurance

1. Is disability covered in term Insurance?

Yes, if you buy a disability insurance as a rider with a term life insurance, it provides coverage against total and permanent disability or other disability types, depending on the insurer.

2. Is permanent disability covered in disability insurance?

Yes, most insurers allow policyholders to claim their total sum assured if they become permanently incapacitated.

3. Should you check the claim settlement ratio before buying disability insurance?

Yes, the claim settlement ratio is an important aspect to look for before buying a disability insurance policy. A higher ratio usually implies that an insurer is reliable.

4. Can a disabled individual buy disability insurance?

No, as such insurance covers disability risks in the future, an already disabled person cannot buy such a plan.

5. What are 70% disability benefits in India?

Under the Rights of Persons with Disabilities Act, 2016, in India, individuals with 70% disability are eligible for a disability relief allowance. It allows them a pension regardless of their earnings.

6. What Insurance is best for disability?

An efficient disability insurance is one which provides a higher sum assured at an affordable premium. Therefore, a careful comparison between insurers is important.

7. What Is the Need for Disability insurance?

The key need of it is related to the disability and the inability of an individual to earn. It covers their expenses as a replacement income in both the short and long term.

8. Can I Avail a New Disability insurance If I Have Already?

Yes, and it is beneficial as having different disability insurance s helps create an optimal disability cover.

9. What is the minimum premium for Disability insurance?

It depends on factors such as the period of coverage, the type of disability you choose, the insurer you choose, and more.

10. Does Disability insurance Cover Permanent Disability?

Yes, most insurers in India provide disability cover for a permanent disability, where you receive the entire sum insured.

11. How to Calculate Disability insurance Premium?

Costs for such coverages depend on age, gender, job type, and the specific earnings you want to protect. Typically, lower-risk professions allow for lower rates. Conversely, high-risk roles involve a higher risk of accidents, leading to a higher price.

12. What are the two most common types of Disability insurance?

The two most common types of such insurance are short-term and long-term, which you can choose based on your needs when purchasing.