Thursday, March 25, 2010

Disability income

I thought I know all about the disadvantages of being a full time tutor. Till yesterday that is. I had been toying with the idea of getting a disability income protection plan to cover some loopholes in my armor. Basically, the plan is to cover the scenario when I'm disabled (partially or totally) and I'm unable to carry on with my job. The plan will pay me a monthly benefit, after a deferred period of 3 months or 6 months, for a period of years.

Thus, the premium for such a policy is a function of

1) Monthly benefit, if you hit the definition
2) Deferred period before you can start getting the monthly benefit
3) The period of time that they will give you the monthly benefit
4) Age, male/female, smoker/non-smoker

There's still one more factor in this, which is the raison de entre for this post.

5) Occupation

The actual premium paid just by changing the occupation is so ridiculous that I might consider substitute products instead of this policy. Let me share some numbers:

For a 3k monthly benefit, with 3 months deferred period, 33 yrs old non-smoking male, payment period of 22 yrs until the age of 55,

My premium as a private tutor is $1.2k per year.
My premium as an admin assistant is $350 per year
My premium as an actor is nil - I can't be covered.
My premium as a teacher is $500 per year
My premium as an accountant is $300 per year.

Hello? 1.2k per year can probably get me a whole life of 50k sum assured. Or maybe a 400k term plan. Why am I paying 2-3 times more than others because of my job? I seriously overlooked the fact that your occupation is so important.

This also means that if you already have a disability income policy, you better be careful when you changed your job. The premiums vary so much as a function of the occupation.


CreateWealth8888 said...

No sensible parents will engage a private tutor who looks sickly. Why pay good money for bad one?

Alvin said...

Oh my, really sounds ridiculous. What kind of tutor do they refer to? :D

la papillion said...

Hi bro8888,

I cannot defend that. You're right. Image does count.

la papillion said...

Hi Alvin,

I've no idea leh...but apparently, I think the high cost is due to the fact that it's easier to claim. I really dun know why it's so much more expensive.

Grey said...

Perhaps private tutors travel a lot, and hence get more chances to be kissed by vehicles;

la papillion said...

Hi Grey,

I thought so too, initially. I checked civil engineering - $300-500 per yr. Construction worker is rejected outright though. So being a tutor is 2-3 times more risky than being a civil engineer, haha

Teachers? It's also 300-500 per year.

I don't understand this.

Anonymous said...

if u change your job, you need to re-declare.. or else u take the risk that they do not pay u. for disability income.


la papillion said...

Hi Elaine,

Ya, I was aware of that. I wonder if people are aware of that too. Anyway, just a small change in descriptions could mean different premiums, haha

Createwealth8888 said...

It is about the risk of losing a job.

Private tutors are self-employed and if they becomes sick no sensible parents will engage them.

If teachers become sick, they can take long paid medical leave. tutors.

Sick teachers maybe can also be medically down-graded to do other less tedious job.

So teachers have low risk than private tutors

la papillion said...


It's a disability cover, so if you can be changed to another job, they will even pay out any amount.

So, I don't agree. But it doesn't matter what I think or not, the fact remains that I'm paying more. I either take it or I find another substitute. Likely I would.

bummy said...


Assuming you are taking with GE or Aviva, the definition of disability income (DI) is very wide in your favour; it pays as long as you cannot work in the job that you are trained for. So if you cannot give tuition for example, they have to pay you (for 1st 2yrs) even if you could stay home to be a telemarker.

The thought of not having an income when I am disabled while still have loan payments drove me to take up this policy recently. I know it would be money down the drain if I dun claim from this policy but it allowed me to sleep a little more soundly.

la papillion said...

Hi bummy,

Thanks for your sharing :) My quotes are all from aviva actually. I'm just thinking if I should just increase my coverage greatly by using a cheap term plan (a few hundreds per yr) or increase this little area of protection by buying an expensive (1.2k per yr for me) disability income.

Maybe both? haha

bummy said...

Hi LP, assuming you already have a good Shield plan, reasonable amount of CI cover and death cover, you may like to take up DI if you have to choose between extra CI or DI. With advancement in medical science, early detection for some of the 30 CI could be possible which will preclude one from reaching the severity level to trigger a CI claim. The fall back would be DI; as a tutor, I think it is rather straightforward to get the doctor to certify you are unfit to teach.

Underwriting for DI cover is strict, hence I would suggest you submit to both Aviva and GE just in case one decides to be more conservative then the other.

la papillion said...

Hi bummy,

Thanks for your kind advise. I will certainly take your points into consideration.

As it is now, I feel I have inadequate death and CI cover (around 150k). I would want to boost up that with a term cover first. The only thing that obstructs me from buying the DI cover is the cost. I initially thought that it's only xxx dollars per yr, so this is a bit over budget for my cashflow.

Probably have to wait till my marriage stuff is settled before I can work out the budget again.

Thanks again!

Lion Investor said...

If the premiums are too high, considering reducing the monthly benefit. You just need to insure enough to cover your monthly expenses.

In any case, you can't cover more than 75% of your income.

la papillion said...

Hi Lion investor,

Thanks for the heads up. I'll look more into it. I didn't know about the 75% income cap...

Will check on it again when I'm more free..thanks again

Buggery said...

Hi la papillion,

I'm quite new to your blog and have been following it for about a week now and I find your articles highly interesting.

Both your activities as an investor and a full-time tutor really resonates with me.

Lately, I have been toying with the idea of becoming a full-time tutor and here's where I would like to seek your advice.

I'm currently tutoring part-time but with quite a heavy load at about 10-12 sessions a week. Heck, I earn more from my tutoring activities than my day job! (which earns me a pittance.) Plus, I do enjoy teaching, at least on a one-to-one level. Not sure if I would enjoy teaching in schools though.

Would really like to find out potential earnings and the viability of becoming a full-time tutor.

Could I PM you some questions?

Buggery said...

Oops! Forgot to leave a contact!

la papillion said...

Hi buggery,

I'll email you, np.