Insurance & Costs of having and raising a child

[d.o.g.]

To add on, I originally had the impression that for a good DI insurance, the policy will pay a percentage, often 75%, of the difference between one's new wage and the old one, where one's new wage will keep changing. However, my take-away from my advisor is that I will need to attribute an amount I wish to cover, and this will be constant even as I age or get increments. i.e. Premiums payable for $1k income coverage is lower than $10k income coverage.

The insurer has no idea what you are going to earn in future. So in order for it to charge you a fixed premium it has to assume you have a fixed income i.e. no increments, bonus etc. If you want the coverage to change with your wages, your insurance premium will also change constantly.

If you earn $2.4k today and you wish to protect it, the insurer might charge you $30 a month to protect 75% of $2.4k i.e. your maximum payout would be $1.8k. In future your pay might be $3.6k but your $30 premium only covers 75% of $2.4k. If you want to insure the extra $1.2k you need to adjust the policy or get a new one. I do not know of any insurer today which adjusts the protection automatically, though I think Aviva has a 3% escalation.

Whether the policy makes sense for you will depend on whether your own assets will suffice to pay for your lifelong treatment and care if you are disabled. The younger you are, the more sense this makes. I personally thought the policy I bought years ago was a fair deal. In fact it was probably a good deal since the insurer no longer offers it!

At that time I paid about 1.5% of my wages as premium. I figured I could easily save the 1.5% difference and not feel the pinch, and yet if I needed it it would become a very valuable asset to help my loved ones take care of me. I do not know what the premiums are like now.