Why is Disability Insurance Important?

Disability insurance is often overlooked but crucial. Protecting your ability to earn income is vital; disability can significantly impact finances and lifestyle. Insure yourself against potential disabilities to safeguard your financial security.

Rahul’s struggle with post-surgery vision loss underscores the fragility of health and income. Disability insurance isn’t just wise—it’s essential.

One of my close friends and clients Rahul from Mumbai is currently disabled.

He has a degenerative eye disorder and requires a corneal transplant. So in July, he had his eye surgery but in his post-operation recovery, he can’t see very well at all.

At that time for about 15 days, his vision was so bad that he had to get two feet away from his daughter Ria to pick her out amongst a crowd of kids, and even at that distance, he had to squint to recognize his daughter. If anyone saw him on the street and he didn’t wave to them it’s not because he was stuck up,  it’s because he can’t see them.

Fortunately, all indications are that the surgery was successful. But what if it wasn’t?

You don’t appreciate your health until you lose it. For full two weeks, he lay on the couch, wearing sunglasses in a darkened room, listening to audio recordings of various podcasts and old Bollywood songs because he really can’t do much else – he couldn’t use the computer, couldn’t read, can’t watch TV, can’t drive, can’t do many things with the kids – he couldn’t help but think what life would be like if his vision never returned.

Do you remember the fable of the goose that laid the golden eggs? In the story, a farmer had a goose that laid an egg of pure gold every day.

Pretend for a moment that you are that farmer. As long as you have the goose you will receive a golden egg every day. With this gold, you can feed your family, make your loan payment, cover the costs of professional education for your kids, and maybe even retire early and comfortably. As long as you have the goose, all this is possible.

What if you were to lose the goose? All of those aspirations – lifestyle, kids’ education, retirement – are in jeopardy.

Guess what? We are all farmers, and we all have a golden goose.

Our golden goose is our ability to earn income. For many people, their ability to earn an income is their greatest asset. A 35-year-old person earning Rs. 30,000 per month will earn more than Rs. 2,00,00,000 before age 65.

Most people discount how valuable the ability to earn an income is. Further, they underestimate how fragile the ability to earn an income is. Quit kidding yourself, One out of three 25-year-old people will be dis­abled for at least 90 days before age 65. The average duration of disability is 2.6 years.

Do you think your lifestyle reduces the risk of an accident happening to you? First thing, you can’t be sure of avoiding an accident. After all, that’s why they are called accidents. The second thing, illness accounts for 8 out of 10 disabilities. How can you be sure that you won’t get sick?

What would happen to your finances if you had no paycheques for 2.6 years? Who would pay your mortgage, feed your family, and pay your hospital bills?

Disability insurance is the answer.

Let’s say we were going to hire you, and we are negotiating your contract. Contract A will pay you Rs. 60,000 pm. However, if you can’t work because you are hurt or sick I will not pay you. Contract B will pay you Rs. 58,500. But if you are stricken with MS, or you lose your sight, or you have a heart attack, or if any of the other million things that affect your health happen,  you still get paid. If this thing that happens to you occurs at age 40, I am going to pay you about Rs. 75,00,000 tax-free, over the next 10 years.

With the chance of disability roughly 3 times the chance of death, with disability accounting for 16 times the number of mortgage foreclosures than death, with about 40 percent of disabilities that last one year continuing for  5 or more years, the sensible option is contract B.

Many people don’t hesitate to insure their stuff – their home, car, and boat. That’s like insuring the golden eggs. Just don’t forget to insure the goose that provides the golden eggs. Insure yourself, and your ability to earn income.