TPD and Personal Accident Plan

[dowz]

I have been wondering about the use of these 2 insurance (TPD/PA), and i still cannot convince myself to purchase them.

My general line of thoughts are that
(1) If i get any TPD/PA - my medical bills (except outpatient) are covered by my shield plans.

(2) Minor accidents - i should be able to work, and my income is protected and not at risk.

(2) Major accident - and i cannot work as a result, then my long term care policy kicks in, which should support my living expenses.

Not too sure if i am missing anything, but if people can share their insights that would be great. not too sure how much a huge commitment outpatient care is for accidents or TPD, if one has the information too, that would be great.

thanks in adv!

[d.o.g.]

IMHO PA is a non-issue because if it's serious the Shield plans would pay, if it's not serious you can self-insure.

TPD is possibly an issue if you get it when you are young, meaning there may be many years of care required before you die. There are perhaps 2 cases of TPD that need to be considered:

a. Good health

Apart from TPD, your other bodily functions are OK so you do not need additional medical care. However you need a caregiver to feed, move and bathe you.

In today's dollars, a maid would probably set you back at least $1,000 a month, that's $12k a year. If you get TPD at age 25, you might need the maid for 50 years. That's $600k.

b. Poor health

If you need long-term medical care e.g. dialysis, medication etc then the costs will be significantly higher. Including the maid your costs might reach $1,500 to $2,000 per month.

A mitigating factor would be that your life expectancy would be shorter, you might not make it past 65 for example. So if you have TPD and poor health at 25, you might only need help for 40 years. At $1,500 per month that's $720k, at $2,000 per month that's $960k.

---
In either case the maximum financial liability is not small. To deal with this one can buy a declining term policy that ends at age 65. Declining term policies are cheap so you can buy very large initial coverage, which fits your needs perfectly since the total cost is highest when you get TPD early, if you get it late you need fewer years of care so it's fine to have less coverage.

What happens at age 65? The term policy expires and you have to self-insure. Can you buy term policies that cover you to age 99? Yes - but the cost is prohibitive. It makes much more sense to save and invest money now, so that by the time you hit 65 you can self-insure your own long-term TPD care.

What if you are already 65 or older? You have to self-insure. Quit smoking, stop drinking, exercise regularly and so on. Investments of time into fitness are paid back many times over, not only in quantity of life (lifespan) but more importantly in quality of life (independent mobility).

Note that there exists ElderShield 300/400 which provides long-term care, but you can only buy it between the ages of 40 and 64, and it only pays for 60/72 months. This makes it rather useless, but there is an upgraded version (PrimeShield) which can pay out up to $3k monthly with no time limit, until you die. For the premiums required it seems more cost-effective to use a declining term policy, however it does not require TPD certification to pay out, only that you fail at least 3 "Activities of Daily Living" which include: washing, dressing, feeding, toileting, mobility and transferring.

As usual, YMMV.

Happy New Year!

[dowz]

Thanks d.o.g.
that's very clear.

[yeokiwi]

(2) Minor accidents - i should be able to work, and my income is protected and not at risk.

If your trade/career is highly dependent on eyes, hands etc, a minor accident may wreck your career or reduce your pay drastically.
Eg. an eye surgeon is unlikely to command the same pay with a pair of trembling hands after an accident.

PA and TPD probably will not help in such scenario. I suppose only disability insurance can cover such unusual cases.

[d.o.g.]

(2) Minor accidents - i should be able to work, and my income is protected and not at risk.

If your trade/career is highly dependent on eyes, hands etc, a minor accident may wreck your career or reduce your pay drastically.
Eg. an eye surgeon is unlikely to command the same pay with a pair of trembling hands after an accident.

PA and TPD probably will not help in such scenario. I suppose only disability insurance can cover such unusual cases.

Disability insurance has been weakened quite a bit in the years since I got my policy from Great Eastern. The policies available today have a fairly low limit on the salary used to compute the monthly payout ($5,000 IIRC), which means that for high earners like eye surgeons there is effectively no real disability insurance as the policies typically pay only 60-75% of your previous salary. With a salary cap of $5k, a 75% payout means you get at most $3.75k per month, which could be a pay cut of 75% or more for an experienced surgeon.

So either move to a country where you can get real disability insurance, or self-insure heavily and do not take on large recurring financial commitments like a big mortgage, expensive car etc.