Table of Contents

• 2025 Introduction
• Dave's Story
• Universal Basic Income
• Faults with the Disability Insurance Model
• PAUG Pension Plan
• From PAUG to Pension Income Protection
• Unemployment Income Protection
• Disability Income Protection
• Education Income Protection
• Care Giver Income Protection
• Death Income Protection
• Survivor Income Protection
• Extra Pension Income Protection
• Extra Long-Term Disability Income Protection
• When DVIP Contributions Stop
• Summary of Primary IPs
• Secondary IPs
• Dental Income Protection
• Medical Expense Income Protection
• Alternative Health Medical Protection
• Facilitated Care Income Protection
• Traveler's Health Income Protection
• Legal Expense Income Protection
• Other Secondary IPs
• Summary of Secondary IPs
• Different DVIP Investment Plans
• Disability Coverage: Traditional vs. DVIP
• DVIP & Dave Volek

2025 Introduction

The principles of Dave Volek's Income Protection (DVIP) were inspired circa 1995. I recall a few articles in The Economist about "Pay As You Go" (PAUG) pension plans. I thought these plans were more sensible than Canada's Pension Plan which seems to promise a certain fixed payment decades later, a promise that might not be deliverable.

I consider myself a progressive thinker. I believe societies need to think collectively to deliver useful institutions to support people's well-being and advancement. But I like to let the free market carry as much of this load as possible, letting the "invisible hand" set the prices.

So ideas churned in my head. In 2000, I published the first edition of Tiered Democratic Governance (TDG). This edition included a chapter about my version of a PAUG pension plan.

I kept thinking about how this system could be expanded beyond pensions. But I did not do much tangible work on this topic for many years.

In 2015, opportunities came to me to put this big idea on paper. In two months, I put together this DVIP document.

When this draft was finished, I thought I would leave the project alone for year, then come back with a fresh set of eyes. Well, that "second round of writing" has not happened. In the past decade, I seem to have found other projects to consume my free time and energy. I do not see DVIP getting that second round in the near future.

But DVIP needs to be "out there," for it is a good idea. While it needs editing, revising, enhancing, and math-checking, the blueprint has everything to understand the principles of DVIP. It would be a shame to keep this idea only in a file on my computer. And it is a good fit for my "Inventions" website, to show my innovative thinking.

A well designed DVIP should provide fairly consistent incomes from pensions, unemployment, disability, et al---even though it relies on free market forces to define the payment. With a DVIP, many citizens would experience less drastic cash flow reduction when a life emergency comes. Having a source of reliable cash flow will help people recover from their emergencies.

I also see great connections between DVIP and the spolu. The spolu is an advanced cooperative that I formally introduced to the world in 2024. The two concepts would be a great fit. Someday I will write about these connections.

Dave's Story

The screen asked: "English or French? It took me a long time to answer even though I knew I did not speak any French: I finally clicked "English".

"Your PIN, please?"

My mind drew a blank: "What's a PIN?" I queried myself. After some very deliberate thinking: "Oh, it's the number that allows me to access my bank account.....what's my number?"

Finally I recalled that often-used number and keyed in the number. The screen had new prompts: "Deposit, withdraw, or transfer?" I couldn't remember why I came to this automatic teller. It took a long time to reason out that I was short of cash and the correct response was "withdraw." This was probably my worst day of my chronic fatigue syndrome. My brain was not functioning very well at all.

About two weeks earlier, I parked my car and barred myself from driving. I had seen a red light, so I stopped---about two blocks from intersection. I had been making a few silly traffic mistakes in the previous days, but this incident convinced me I should no longer be on the road.

About two months earlier, I lost my job. I couldn't keep up the pace in the engineering company I was working for. They allowed to try working remotely from home, but even a couple of hours a day were killing me.

About two years earlier, I felt a little fatigued. I had a doctor check me over and a quick blood test had me diagnosed with the Epstein-Barr virus. The doctor told me to take some rest to get rid of this virus. But I was only a little fatigued. So I continued with my current pace, working part-time as a free-lance technical writer, which allowed me to do lots of volunteer work in my community. The fatigue never worsened even thought that virus kept showing positive on subsequent blood tests.

Then I took a full-time job, with a 50-hour workweek and two hours a day commute. For the first month, all seemed well. But slowly I was losing energy. I dropped a volunteer activity. The days were getting a little harder to get through. Then I started developing insomnia. "How could I be so tired, yet I can't sleep?" I thought. As the insomnia became more frequent, I had to mentally barge my way through the day with only three hours sleep the night before. My doctor told me to take some rest, but I thought I could tough my way through this illness. My boss graciously gave me a couple of weeks to work from home and recover. But recovery was not coming soon, and he needed a professional working fulltime in the office. I handed in the company's laptop computer and got my last paycheck.

I had my blood tested a few days after my last day of work. After circulating two years in my body with seemingly trivial effects, the Epstein-Barr virus had finally left. But I was a lot worse off.

My family doctor referred me to specialist, and it seemed I had "chronic fatigue syndrome (CFS)", a disease which has lots of symptoms, but no detectable causes. Hence there seemed to be no treatment. What I found on the internet at that time was that about 50% of CFS's victims recover in about five to ten years.

I thought I had prepared well for a possible disability in my life. Twelve years earlier, I had bought a disability insurance policy and faithfully paid premiums all this time. Its benefits were not large, but enough to keep me out of destitution. I got the family doctor and specialist to fill out their parts to claim, noting the history of the Epstein-Barr virus. I thought with these doctors documenting my case, I would be covered.

The disability insurance company refused my claim. With the Epstein-Barr officially gone, I seemed to have been cured-from their perspective. Hence no benefits were to be forthcoming.

I spent next year arguing with this company, hoping eventually it would come around to paying. Eventually my savings were depleted and I was about two months away from not being able to pay rent for my one-bedroom apartment. I told the insurance company that I'm just going to hand over this case to a legal firm willing to work on contingency: "If I end up living on the street, it's very unlikely I will ever recover from this illness. Before we get to this state, make me an offer to buy out my policy." They made an offer, and I got them to increase it a little. We settled out-of-court before the lawyers got involved.

The payout was greater than all the premiums I had paid in 12 years. So as an investment, I did well. But investing was not the purpose of these premiums; I thought I was buying income protection. By accepting the payout, I was taking a risk in that my condition may have kept me out of the workforce for the rest of my life. Perhaps I could have got even more from the insurance company, but it was more important for my recovery that I not face whatever consequences of not being able to pay for rent and food. So trading the long term for the short term seemed to be the best option.

In getting the settlement, I also had to sign two other legal documents. The first was an agreement not divulge the actual amount of the settlement. The second document was that I had to state that I was not in any distress that forced me to accept the settlement. I'll let the reader come to his or her own conclusion on that second document.

During this year of negotiating with the insurance company, I could see that I was slowly getting better (and I did tell the insurance company of these positive changes). I started driving again, initially limiting myself only short trips when my brain was reasonably clear. I continued with most of my volunteer activities as these kept me in contact with people and gave me a sense of purpose. To control my insomnia, I had learned not to go to bed until I was dead, dead, dead tired. So I would read, write, or play computer games at least until midnight, sometimes to 4:00 a.m. These "thinking" activities were indeed hard on my impaired cognition, but they got me really tired. By deliberating burning myself out at the end of the day, I got a full seven or more hours of sleep each night. I felt confident that I was going to eventually recover.

With my bank account quite full, I had a great deal of stress lifted off me. I took another year away from the workforce. Eventually I could see enough improvement in that it was time for me to get a part-time job. About that time, a few life circumstances arranged themselves such that I needed to move to my former home town (Brooks, Alberta), where there would be more work opportunities. So I moved.

Because I was stronger in the evenings (and still staying up to the wee hours of the morning), I wanted an afternoon/evening shift that was somewhat physical and outdoors. Pumping gasoline suited all these conditions. My new boss was quite flexible with my condition, and started me at two shifts a week. Initially these shifts were very exhausting for me. But I could recover with a day's rest. I was getting stronger and eventually built myself up to handle five shifts a week.

After a couple of months of working full-time and actually falling sleep by midnight each night, I found an easy oilfield job. The pay was a better than the gas station, and I was still in a physical work activity. However this job was more difficult than pumping gas, and I left work quite tired. I consider that time of my life as working, eating, resting (lots of watching TV), sleeping, and not much else. As I gained more skills with job, my boss wanted me to take on some management duties. But I felt my current front-line duties were all that I could handle.

A few years later, I found my current occupation as an educational assistant for a local college, helping adult learners gain their high school credentials. Relearning all my high school math and sciences really taxed my brain as I still had cognitive difficulties. But when I regained most of these skills, the job became easier. While I was definitely not making a professional salary, I was above the "working poor" income level, which is a stress reliever in itself. And this job has its own intrinsic reward of me helping learners progress their academic challenges.

As I was making all these life changes, my energy levels were slowly getting better. Each year, I could do a few more things I wouldn't want to try a couple of years earlier. I would say that it took 12 years after I lost the job from engineering company before I could say I have mostly recovered. Although I don't have energy levels today I would like to have, I attribute this condition to being of an older age, not any CFS. Despite this recovery, I guard my energy, careful not to accept too many demands from the world. For example, I am not too ambitious to find a higher-paying management position, something I would have aspired to in my younger days. I still struggle cognitively when juggling too many balls, and that's a good sign not to overextend myself.

Universal Basic Income

When I purchased my disability insurance plan in 1986, my objective was to provide me with a basic income, something to cover rent and food. Not much else. I thought this would be enough to prevent destitution in case of a severe injury or illness.

If Canada had a Universal Basic Income (UBI), I would not have bought that insurance. And if Canada had a UBI, I would not have needed to chase down an insurance company for a disability insurance payment. A UBI would not have given me the experience to write about this idea.

I first heard of a UBI from my last year in high school (1977). My social studies teacher introduced this idea in one of her classes. It was called "negative welfare" back then. In this system, everyone gets an income to ensure they can pay for the basic essentials of life. This idea impressed greatly on me, never really leaving my realm of thinking. Even in my brief sojourn into libertarianism, I thought this negative welfare was a good idea. "True freedom," I thought, "means not having to worry about basics."

This idea is better known as UBI today. And it has gained more traction in this past decade. Unless western society devolves into some kind of fascism, the UBI's future implementation is likely.


Advantages

The UBI is to replace current programs for social assistance. It has two main advantages. First, current social programs require legislation and a civil service to decide who gets social assistance-or not. Even the best design will have deserving people "falling through the cracks" and undeserving people getting a benefit. In a sense, legislators and government workers are often playing a small god with people's lives and don't always get things right. With a UBI, everyone gets the benefit: there is no god complex. Second, it costs taxpayers to staff these offices where social assistance is provided. With a UBI, no one is making such decisions, so these administrative costs will be much smaller.

These two advantages are often articulated in the writings of UBI advocates. So I'm not going to dwell on them very much here in this paper. Instead, I'm going to briefly give a few more secondary advantages for a UBI. With basic necessities being taken care of, people are going to change how they approach their occupations. Basically, workers will be working for a disposable income, not a survival income. Here is a few more advantages:

1. Some workers will work part-time, taking a less stressful path to life. Great for societal mental health.
2. Some workers will move more into the volunteer sector. These "jobs" generally do not show up in a nation's GDP figures, but they contribute to a better society. These workers will be happier making the world a better place.
3. Many workers will not put up with crappy bosses and working conditions. Indirectly, a UBI will create a better class of managers to find and retain workers. Better managers will eventually benefit the economy.
4. Some workers will prefer more home time with their kids or as care-givers.
5. Some workers will be training themselves for better work in the future. Without a UBI, they could not find the time and energy for further education.
6. And some workers need to stay out of the workforce. Let's face it, there are people who should not be hired to "watch paint dry." Every time such a worker takes a job-and has to be fired shortly after, the business world loses resources for having such a person around for a short time. A UBI will better ensure job applicants are ready for a job. There will be fewer ineffective new hirings. And that too will improve the economy.

Implementing a UBI

There are two schools of thought as to how to implement a UBI. First is to just implement a UBI fully an immediately. Second, do it gradually, slowly increasing the benefit over time. I belong to this second school.

Because of my disability, I was a member of the "working poor" for about six years. I just couldn't take on a job with more responsibility and higher pay. I figured that I needed about C$1200 a month for rent, food, and an old car in those times. The old car was my means to commute to work. I did earn a bit more than that $1200, but there was no new car or get-away vacation with my income. So let's just set C$1200 as the UBI for that place and time.

A minimum-wage, full-time worker in that place and time would have netted about $1400 a month. So if a UBI is fully implemented, it's not hard to see that more than a few workers will quit their job and take that $1200 payment. Important work that still needs to be done just won't be done.

So rather I suggest we start with a $200 a month UBI payment. Then slowly increase with time-and let the economy slowly adjust to the new reality. While many of the working poor will be happy with $200 more, there won't be much of a free-loader effect. Most will stay with their jobs and continue with their usual life, just with a bit more disposable income-which is usually spent in the local economy, enhancing the opportunities for other working poor workers.

The full-on UBI advocates will say that $200 won't make that much difference in peoples' lives. I have two counter arguments to that. First, my family is already on a quasi-UBI program. We are lower-middle class in Canada, and we get a child-benefit stipend for our two sons. It comes to about 20% of our net income. That 20% allows us to put money into their education fund, plus take a 3 or 4-day road vacation as a family outing. This small UBI does make a difference in our lives. Second, a $200 UBI will not unravel all the other social programs. They will still be there for those people who really need it. If fact, these programs will likely take that $200 of their final payment to the recipients.

A gradual implementation of the UBI will allow economists, sociologists, and psychologists to monitor the population. For example, a $200 UBI payment might entice the residential rental industry to raise its rents by $200. If so, the next raise in UBI must wait until the free market forces the rents down to their natural levels. Or the hospitals just might see fewer calls for mental health issues.

And the UBI increases can be implemented in the downturns of economic cycles. If people have trouble finding jobs, give everyone another $200 a month. Most will spend it in their local economy, helping other local people to get jobs. This is just good Keynesian economics.

As the UBI increases, other social programs should be modified to reflect the UBI payment. Social benefits should be reduced. As benefits become lower, there should be less scrutiny, meaning fewer workers and offices to make decisions. Eventually, some social programs should disappear.

Undoubtedly, there will be people who cannot make ends on a UBI income where many other people can (without work or outside wealth). In these cases, social workers and offices will still be required to address these people's inabilities to manage their life well. But the help will be less suspicious and more targeted. Many UBI people on the fringes will no longer need the scrutiny of the government in their lives.


UBI & DVIP

There is no doubt in my mind that a UBI will drastically alter our society for the better. We just need to do it slowly, watch how society changes, and make appropriate adjustments.

A UBI will also affect how a DVIP should be designed. DVIP, in this book, is premised that UBI is not is place. So therefore this design assumes that DVIP will play a role in both survival income and disposable income.

Faults with the Disability Insurance Model

This section is going to be critical of the disability insurance industry. Before it sounds like I am too vindictive, I would just like to make the following points clear:




But why was I denied benefits?

It would be easy to just say that paying me benefits took away from the bottom line of the insurance company. But I think this is more to my story. The industry has a faulty business model.


The fundamental business equation all disability insurance companies must abide by is:



If this condition is not maintained, the company eventually becomes insolvent and can no longer provide income protection for anyone.

To maintain this solvency condition, the disability company uses "actuarial science." This practice primarily employs the studies of economics, statistics, and mathematics to find that right balance between premiums and benefits. Its professionals are called actuaries.

For example, a disability company may want to create a disability insurance policy targeted to "mechanics." It wants to offer a package that pays a benefit $2,000 a month if a disability occurs in the mechanic profession.

The actuary and business managers would start putting together a program to build a disability insurance program marketed towards the mechanic trade. They need to start putting some numbers together. Here are their assumptions:

1. It will cost $250,000 to market to mechanics. This cost is amortized over a ten-year period for $25,000 a year.
2. This marketing should result in 1,000 mechanics paying the premiums.
3. It will cost about $15,000 a year to administer this plan. Administration includes monitoring premiums and processing disability claims.
4. The data suggests that any given time, 3% of tradespeople are disabled. So for 1,000 mechancs, 30 will be disabled. With a $2,000 a month benefits, this costs the insurance company $720,000 a year.
5. Total estimated costs are $760,000 a year for this particular marketing project.

Then the insurance company just needs to do the math to figure what premiums should be. For this scenario, it would need to charge the 970 healthy mechanics a monthly premium of $65.29---if this plan is to remain solvent.

Would 1,000 mechanics be willing to pay this premium to be covered for disability? Can they be convinced to pay this amount? The insurance company will try to answer these questions before it embarks on this business plan.

The math behind the $65.29 figure is, admittedly, quite simplistic. In the real world, the accountants and actuaries will be using a more sophisticated analysis to get a break-even figure for a premium.

But let's assume the figure holds up in this analysis. Then the insurance company rounds it up to $70.00, for a benefit of $2,000 if disabled. This extra premium ensures the plan will generate some profit for the insurance.

The marketing plan succeeds. It finds 2,000 mechanics to sign on, giving some "economies of scale" to earn a little bit more profit. Premiums start coming in without a lot of expenses. But this won't last.

Some mechanics will become disabled. Instead of paying premiums, they get benefits. This should be no problem as the analysis says disabilities will eventually happen. The premiums should cover the benefits and administration costs-if the actuarial science has been done right!

This science might have not been done right. Disabilities might be higher than 3%. Going to 5% will result in a plan insolvency. Here's how. With the 2,000 mechanics in the plan, 1900 will be paying $70.00 a month in premiums. This gives a total revenue of $133,000 a month. One hundred will receiving $2,000 a month in benefits, for an expense of $200,000. This plan is now losing money. All because of a mistake in interpreting data-or maybe the world just changed enough so that good data was not quite right anymore. Actuarial science is never an exact science.

And then there is competitive pressure from the marketplace. Disability insurance is competitive. Customers mostly look at premiums vs. benefits. Another disability insurance company sees the success of marketing to mechanic, and it wants some of that business. It offers the same coverage for $55.00 a month. It may have a different enough business model (more economies of scale) such that its analysts can justify a $55.00 premium. Or maybe it is just being reckless, counting on an increasing market share to find the profits later, which is a common business strategy. Regardless, the first company is now in a bad spot. It would be difficult to attract more mechanics with its $70.00 premium. Some of its current customers are cancelling their plans and going to the new company. The first company could lower its premiums, but then there is insolvency looming. But losing healthy, premium-paying customers is also courting insolvency. How does this plan remain solvent?

The insurance industry often insures itself. It buys insurance from a re-insurance company it case claims get too high. But re-insurance has a price, and it can only be used to a certain extent. If re-insurance claims become normal, re-insurance premiums will increase. Insurance companies don't want to use re-insurance unless they really have to.

Let's bring back the solvency equation again:



The variable that disability insurance companies have the best control over is "Benefits." While it cannot reduce the amount of benefit (for this is usually very explicitly stated in the contract), it can disallow claims so that no benefit is paid to certain claimants.

Let's go back to mechanics example. Maybe five years after the mechanics plan starts, it reaches that 3% disability figure. That figure probably came sooner than expected. Management will take notice and realized if trends continue, the plan will become insolvent. So they are proactive. They make the decision to scrutinize all new claimants, using whatever legal leverage not a pay a claim.

So another 30 claims come in next year. Instead of honoring these claims, it starts playing hardball. Twenty claims are approved with some stalling; the other 10 are denied. Such a move would bring this plan back to solvency yet give an appearance that the company is honoring its contractual obligations.

This business strategy doesn't help the 10 claims who were not accepted for disability benefits. While they have the civil court system to force the disability insurance company to honor its contract, this process is lengthy and expensive. When a claim is denied, most of the outcomes are favorable to the insurance company:

• The claimant may indeed be of a malingering nature, unworthy of disability benefits.
• The claimant may give up rather quickly, even if the claim is legitimate.
• The claimant may put up a little fight and give up later, even if the claim is legitimate.
• The claimant may not have the financial resources to proceed through the civil court process
• The clamant may not have health stamina to proceed through the civil court process.
• The claimant may die before the civil court process reaches its conclusion.
• The claimant may settle for a buyout of the policy far below its predicted payout.
• The decision of the civil court may go against the claimant.

It should not be surprising if actuaries have done an analysis of all these outcomes for different kinds of claims. For example, the insurance company may know that a certain kind of claim has only a 10% chance of going through the entire civil court process. Therefore denying these claims means 90% of denied claimants will really not cost the insurance company much money. It pays to deny claims, especially in the early stages of the claim process.

This ability to be tough with claimants provides an important tool for disability insurance companies to design and manage their disability insurance policies. They can offer lower premiums than what their actuaries may be recommending to be competitive in pricing. If too many of their policies later seem to be insolvent, the number of denied claims increases, focusing on the claims that have a better chance of success for the company. If the policies are solvent and profitable and shareholders are happy, the denial process is relaxed, thereby maintaining a good reputation for long term marketing of future policy sales.

But let's not forget that there is a natural force that cause disability insurance to want to deny claims.

PAUG Pension Plan

Long before I invented my disability insurance plan, I invented a pension plan. Now this pension plan is easier to explain, so I will start with that. Then I will bring in disability insurance and other forms of income protection. Then I will tie all these things together.


I had a period in my life when I had a strong opinion on just about everything and I was very politically active trying influence my version of the world onto everyone else. I was listening to well acknowledged expert on pensions who claimed the Canada Pension Plan (CPP) was insolvent. When challenged by this commentator, the minister in charge of the Canada Pension Plan claimed the plan was nowhere near being insolvent. I realized that if the plan were indeed insolvent, it is very unlikely any minister would admit this. And shortly after this announcement, the government started to make a few changes to the CPP, claiming it was only making a great pension plan even better.

Rather than rely on rhetoric, I decided to do a little investigation on my own CCP account. My CCP statement recorded how much money I had contributed to the CCP since I started working. From this data, I could project how much I would likely contribute to my retirement at the age of 65. At the bottom of the statement was a little box that stated my monthly benefits after my 65th birthday. The statement gave me no clue as how that number was determined. It was just magically there.

So I put together my past and future contributions to the CPP and weighed them against my benefits between my retirement age of 65 and my expected life expectancy of 77 years old. With this calculation, I would be taking out a lot more money than I had put in.

I realized that the concept of compound interest should be applied to my contributions. So I redid the calculations and still came up with a big shortfall. And this shortfall did not include the expense of all the civil servants hired to administer the CPP or for their office space. From my perspective, the CPP was indeed insolvent.

Not being an actuary, I knew that there still might be some faults with my reasoning. I should have probably done more investigating and research into this matter. But the nature of my CPP statement was very patronizing to me. That mystery number of "monthly benefits after the age of 65" gave the impression that that figure was arbitrarily determined. It seemed to me that the CCP administrators were hiding something. "What we really need," I thought at that time, "was a more honest approach to reporting government pensions."

My creative brain went on overdrive for a month or so until I came with a different model of pension delivery. It can be summed up basically as "the workers' pension premiums pay the retired citizens' pension benefits." This is not an entirely new concept; similar plans called "pay-as-you-go" (PAUG) have been suggested and implemented.

To better explain PAUG, I have created a fictitious ten-person society. The following assumptions apply to this society:

• All citizens start work at the age of 18.
• While citizens have different earnings, individual earnings are assumed to be consistent each year.
• All working citizens are obligated to contribute 1% of their earnings to the plan.
• Working citizens can contribute more than 1%.
• $100 buys the citizen one share in the PAUG.
• Citizens who are retired distribute the premiums paid pro rata to the shares that they hold.
• Eight citizens are currently working; two are retired.

The table below shows how the numbers are entered into this PAUG society.

If you are reading this book from an e-reader platform, there is a good possibility that this table might not convert well enough to display properly with your current e-reader settings. If this is the case, then I hope that you will either read to text around to the table to gain whatever understanding or go to the website to see the table clearly.

As the document moves forward, the tables get more complex-and less likely to be displayed properly.

My apologies for this inconvenience. I can only hope that I have sparked enough interest for you to work with these flaws.


Year X

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	73	0	0	0	115	$1348
Ellie	68	0	0	0	175	$2052
Reza	63	$40,000	$400	4	180	0
Fiona	63	$20,000	$200	2	90	0
Bill	55	$60,000	$600	6	222	0
Sheila	41	$20,000	$200	2	46	0
Willy	38	$50,000	$500	5	100	0
Veronica	31	$60,000	$600	6	78	0
Fatimah	27	$30,000	$300	3	27	0
Beatrice	21	$40,000	$400	4	12	0
John	19	$20,000	$200	2	2	0
Total			$3,400			$3,400

Comments

The premiums paid by the eight working citizens are distributed pro rata to the two retired citizens: total premiums equals total benefits. Ellie gets $2052 (175 / 290 x $3400) and Bernard gets $1348 (115 / 290 x $3400).

It seems this PAUG society is not paying its retirees enough pension income to sustain themselves. Let's just assume that this society designed its PAUG pension plan such that citizens should look to their retirement income from several sources, not just the PAUG.

Year X+1

In this year, a young citizen enters the workforce and starts contributing to the PAUG. All other citizens are advanced one year.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	74	0	0	0	115	$1467
Ellie	69	0	0	0	175	$2233
Reza	64	$40,000	$400	4	184	0
Fiona	64	$20,000	$200	2	92	0
Bill	56	$60,000	$600	6	228	0
Sheila	42	$20,000	$200	2	48	0
Willy	39	$50,000	$500	5	105	0
Veronica	32	$60,000	$600	6	84	0
Fatimah	28	$30,000	$300	3	30	0
Beatrice	22	$40,000	$400	4	16	0
John	20	$20,000	$200	2	4	0
Daphne	19	$30,0000	$300	3	3	0
Total			$3,700			$3,700

Notes: The retiree are getting a little more money from this pension plan because of the new worker contributing to it.

Year X+2

In this year, Fiona and Reza are making important life decisions. Reza decides to retire, so he becomes eligible for PAUG benefits. Fiona would also like to retire, but she sees she doesn't have enough retirement income. Not only has she determined she needs at least another two years of working, she decides to increase her contributions to the PAUG from 1% of her earnings to 5% to buy more shares in her last two years of working.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	75	0	0	0	115	$995
Ellie	70	0	0	0	175	$1514
Reza	65	$0	$0	0	184	1591
Fiona	65	$20,000	$1000	10	102	0
Bill	57	$60,000	$600	6	234	0
Sheila	43	$20,000	$200	2	50	0
Willy	40	$50,000	$500	5	110	0
Veronica	33	$60,000	$600	6	90	0
Fatimah	29	$30,000	$300	3	33	0
Beatrice	23	$40,000	$400	4	20	0
John	21	$20,000	$200	2	6	0
Daphne	20	$30,0000	$300	3	6	0
Total			$4,100			$4,100

Notes:

The net effect of Reza no longer contributing to the PAUG and Fiona increasing her PAUG contributions is that more money is being put into the PAUG. With Reza, however, having changed his status from a contributor of the PIP to a beneficiary, more shares are being held by retirees than the previous year. The pension per share has been significantly reduced.

Ellie's pension drops from $2233 to $1514, and Bernard is seeing a similar result. This sounds terrible, but a real society with many more citizens should not see swings in payment as big as these swings.

In case the reader has not yet realized it, the payment per pension share (and ultimately the pension payment to each retiree) is going to vary as time passes. Many citizens in western countries will find this variableness somewhat disconcerting as social programs promise and deliver a constant payment to citizens (and usually indexed to inflation). As the reader moves further into DVIP however, he will realize that swings in payment should not be as severe as this example suggests.

Year X+3

In this year, two citizens pass away: Willy & Bernard.

Willy passes away before he gets to collect his pension. In essence, he has put money into the PAUG, but neither he nor his estate will get money from this plan. To some readers, this may seem unfair but this unfairness will be rectified later.

Bernard has been collecting pension benefits for several years. With his passing, no more PAUG funds will be going to his bank account, and these funds can be split among the remaining pensioners.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Ellie	71	0	0	0	175	$1755
Reza	66	$0	$0	0	184	1845
Fiona	66	$20,000	$1000	10	112	0
Bill	58	$60,000	$600	6	240	0
Sheila	44	$20,000	$200	2	52	0
Veronica	34	$60,000	$600	6	96	0
Fatimah	30	$30,000	$300	3	36	0
Beatrice	24	$40,000	$400	4	24	0
John	21	$20,000	$200	2	8	0
Daphne	21	$30,0000	$300	3	9	0
Total			$3,600			$3,600

Even though less money is flowing into the PAUG (because Willy passed away), the two retirees get a little extra money because Bernard has passed away and is no longer sharing in the pension funds.


Questions & Questions

If readers are still with me, I'm going to assume they understand the math behind this simple PAUG plan. But there may be a few more questions that need some answers to keep readers engaged with this idea.

In this model, Ellie's annual pension changes from $2052 to $2233 to $1515 to $1755. Why is there so much fluctuation?



Why 1% of earnings goes into the PAUG?



Was this 1% a mandatory or a voluntary payment?



How would the contributors retain trust in the PAUG to continue contributing?



Does the PAUG have a mandatory retirement age?

From PAUG to Pension Income Protection (PIP)

One the questions posed in the previous section posed the possibility of contributors seeing that their PAUG shares becoming worthless when it is their time to retire. So it makes sense for them to stop contributing, thus bringing the PAUG to insolvency very quickly. I will discuss two tools in this section to minimize this possibility. With these two tools, I would say the PAUG will produce a more reliable and secure of retired income. I will call this design Pension Income Protection (PIP).

Reserve

In the small PAUG society example of the previous section, premiums from contributors went directly into pension payments. Rather than this mechanism, PIP contributions should be put into a reserve. This reserve should be maintained such the current level of benefits can be paid for a fairly lengthy time.

This reserve would be reinvested and income earned would put back into the reserve.

Benefit-per-Share

The PIP would establish a certain amount as the benefit-per-share amount. The benefits paid to retirees would be the product of number of PIP shares held and the benefit-per-share.

The benefit-per-share would be adjusted periodically and slightly to allow the PIP to better maintain its reserve. Payments to retirees will still fluctuate, but the fluctuations will be nowhere as severe as PAUG.

The PIP Example

I'm going to bring back the 10-person society in the PAUG example, but apply the same conditions to PIP. But first we must design our PIP. Here are the specifications:

• The reserve is to be maintained at five years of benefits.
• If the reserve is lower, the benefit-per-share decrease by $0.25.
• If the reserve is higher, the benefit-per-share increases by $0.25
• The current reserve is $16,011
• The current benefit-per share is $11.75 per PIP share.
• The reserve is reinvested at 5% per year.

Year X

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	73	0	0	0	115	$1351
Ellie	68	0	0	0	175	$1969
Reza	63	$40,000	$400	4	180	0
Fiona	63	$20,000	$200	2	90	0
Bill	55	$60,000	$600	6	222	0
Sheila	41	$20,000	$200	2	46	0
Willy	38	$50,000	$500	5	100	0
Veronica	31	$60,000	$600	6	78	0
Fatimah	27	$30,000	$300	3	27	0
Beatrice	21	$40,000	$400	4	12	0
John	19	$20,000	$200	2	2	0
Total			$3,400			$3,263

The two retirees of this PIP example are earning a little less than the PAUG example.

With these benefits were to be paid for five years, the reserve would need to be $16,315 ($3,263 X 5). The reserve is only $16,011, which is a little short. So the benefit per share is decreased to $11.00 for the next year.

But the new reserve is calculated with the contributions and reinvestment income added.

New Reserve = $16,011 + $3,400 + $802 - $3,263 = $16,950.

Year X+1

In this year, a young citizen enters the workforce and starts contributing to the PAUG. All other citizens are advanced one year.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	74	0	0	0	115	$1265
Ellie	69	0	0	0	175	$1925
Reza	64	$40,000	$400	4	184	0
Fiona	64	$20,000	$200	2	92	0
Bill	56	$60,000	$600	6	228	0
Sheila	42	$20,000	$200	2	48	0
Willy	39	$50,000	$500	5	105	0
Veronica	32	$60,000	$600	6	84	0
Fatimah	28	$30,000	$300	3	30	0
Beatrice	22	$40,000	$400	4	16	0
John	20	$20,000	$200	2	4	0
Daphne	19	$30,0000	$300	3	3	0
Total			$3,700			$3,190

With the benefit-per-share being slightly reduced, the retirees get a slightly lower income.

If this level of benefits were to be paid for the next five years, the reserve would need to be $15,950. But the reserves is $16,950. So the PIP can increase the benefit-per-share for next year back to $11.25.

New Reserve = $16,950 + $3,700 + $848 - $3,190 = $18,308

Year X+2

In this year, Fiona and Reza are making important life decisions. Reza decides to retire, so he becomes eligible for PAUG benefits. Fiona would also like to retire, but she sees she doesn't have enough retirement income. Not only has she determined she needs at least another two years of working, she decides to increase her contributions to the PAUG from 1% of her earnings to 5% to buy more shares in her last two years of working.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Bernard	75	0	0	0	115	$1,294
Ellie	70	0	0	0	175	$1,969
Reza	65	$0	$0	0	184	$2,070
Fiona	65	$20,000	$1000	10	102	0
Bill	57	$60,000	$600	6	234	0
Sheila	43	$20,000	$200	2	50	0
Willy	40	$50,000	$500	5	110	0
Veronica	33	$60,000	$600	6	90	0
Fatimah	29	$30,000	$300	3	33	0
Beatrice	23	$40,000	$400	4	20	0
John	21	$20,000	$200	2	6	0
Daphne	20	$30,0000	$300	3	6	0
Total			$4,100			$5,333

If this level of benefits were extrapolated for five years, the reserve would have to be $26,665. It is only $18,308. So the benefit-per-share will decrease to $11.00 for the next year.

New Reserve = $18,308 + $4,100 + $915 - 5,333 = $17,990

Year X+3

In this year, two citizens pass away: Willy & Bernard.

Willy passes away before he gets to collect his pension. In essence, he has put money into the PAUG, but neither he nor his estate will get money from this plan. To some readers, this may seem unfair but this unfairness will be rectified later.

Bernard has been collecting pension benefits for several years. With his passing, no more PAUG funds will be going to his bank account.

Name	Age	Annual Income	Pension Premiums Paid for this year	# PAUG Shares purchased	Total PAUP Shares	Pension Benefits Paid for this year
Ellie	71	0	0	0	175	$1,924
Reza	66	$0	$0	0	184	$2,024
Fiona	66	$20,000	$1000	10	112	0
Bill	58	$60,000	$600	6	240	0
Sheila	44	$20,000	$200	2	52	0
Veronica	34	$60,000	$600	6	96	0
Fatimah	30	$30,000	$300	3	36	0
Beatrice	24	$40,000	$400	4	24	0
John	21	$20,000	$200	2	8	0
Daphne	21	$30,0000	$300	3	9	0
Total			$3,600			$3,949

Five years of benefits comes to $19,745. The reserve is at $17,990. So the benefit-per-share will have to drop by $0.25 again to $10.75 per share.

New Reserve = $17,990 + 3,600 + 900 - 3,948 = $18,542


Comparison being PAUG and PIP

The PIP's design using the five-year reserve and a slightly changing benefit-per-share produced a much more stable income for the retirees than the PAUG. When the PIP is implemented over thousands of members, there will be even more stability.

If DVIP members can see stability in the PIP, they are more likely to continue contributing to build their PIP shares as a source of retirement income. With continual contributions, long term stability is the result for DVIP. Implementing the reserve and slightly changing the benefits-per-share creates a lot of long-term stability.

As other IPs are added, there will be further stability.

Unemployment Income Protection

In my opinion, unemployment insurance (UI) is a great social program allowing citizens a temporary income between jobs. I have had a few decades of watching Canada's UI program change, which is financed by employees and employers. Below is a list of reasons why this UI program did not or still does not give benefits to citizens who have "lost" their jobs yet paid into this social program:



For those citizens who have paid into this UI plan, lost their jobs, and not received benefits for these reasons, the plan is not fair to them.

DVIP will set up its own UI Plan, similar to the PIP. Similar to the PIP, the UIP (Unemployment Income Protection) will try to maintain a reserve, adjusting the UIP benefit-per-share to keep the plan solvent.

But the UIP will not discriminate why a member becomes employed. If the citizen had an employment income and that income is no longer there, the citizen gets her rightful UIP payments.

The UIP is a primarily income protection during a transition between jobs. It should not be set up such that an unemployed member can linger for a long time while receiving benefits. So the UIP should have a process whereby that the citizen forfeits a certain percentage of her UIP shares for every month that member draws benefits from the UIP. In this way, the UIP still provides a short-term temporary income while the citizen transitions between jobs yet the citizen has incentive to move off this plan because it will not provide long-term income.

And with the UIP, there are no civil servants interpreting legislation to determine who gets benefits and who does not.

One More Feature for the UIP

The UIP could also be used for a citizen to get an emergency cash payment-even if the citizen is still working.

Won't this feature be abused? Not really. Here are three reasons why:



UIP is primarily for unemployment income protection. But it can be used for other things, like emergency cash or short-term disability. So when a citizen tells the DVIP administrator: "I would like to take my UIP entitlements in the month of April," the administrator really has no need to question the employment status of this citizen.

Disability Income Protection

We are finally coming to the social program that inspired DVIP: disability insurance. To briefly recap, denying inconclusive disability claims probably keeps disability insurance companies solvent, if not more profitable. DVIP removes this economic force from the decision-making process of the insurance company.


Short Term Disability

When a DVIP member has an injury and illness that prevents him from working, he can use his UIP shares to provide income during the first six months of this disability. There would be no proof of disability to get the UIP benefits.

During the next six months, the member can gather all his medical evidence for the disability. After six months of disability and the proof, the member can chose to stay on UIP or Short-term Disability Income Protection (SDIP). If the UIP is still paying more than the SDIP, the member should stay on UIP. When the SDIP pays more, the member changes to being paid by the SDIP.


Long-Term Disability

Twenty-four months after the SDIP is enacted, the member can then apply to the Long-term Disability Income Protection (LDIP). If his SDIP shares are paying more than his LDIP shares, he should stay with SDIP. He can change when LDIP produces a bigger income. But when he makes the choice to LDIP, he cannot go back to SDIP.


SDIP and LDIP Shares

Similar to the PIP and UIP, the DVIP member will be buying shares in the SDIP and LDIP. These shares will determine how much benefit the member receives if he becomes disabled. While building up these shares, the member's contribution to the SDIP and LDIP help currently disabled members with their income. The SDIP and LDIP will also have a reserve, and the benefit-per-share will rise or fall depending on how well this reserve is maintained. When a member is drawing an income from SDIP and LDIP (as well as UIP and PIP), that member will not be allowed to contribute to DVIP and buy more shares in DVIP.

The member should emphasize which IP sections are more important to him and allocate the contribution accordingly. For example, a younger member may distribute his $100 a month payment as: $40 UIP, $40 SDIP, $15 LDIP, & $5 PIP. An older member may find the PIP much more important, but would be obligated to make a minimum payment to the other funds: $5 UIP, $5 SDIP, $5LDIP & $85 PIP


Minimum Payment

This minimum payment to each IP is quite important to the solvency of DVIP. The older member previously described may feel he already has sufficient UIP, SDIP, & LDIP shares to cover him in his last few working years-and he likely won't get much benefit from these IPs. However, his minimum contributions are helping to pay the income of those members drawing from these plans. The older member should be comforted knowing that many younger members are contributing their minimum payment to the PIP, helping to keep his pension income up when he does retire. While DVIP members will be apportioning their contributions that best suits their self-interest, their obligatory minimum payments to unwanted IPs is helping other members with a stable income protection. DVIP is very much like a team helping each other yet allowing each member to emphasize his own self-interest.


DVIP Administration

By now, you are probably realizing that recording of all these shares, contributions, and payments is going to cost something. DVIP will actually be a management company of the various IPs. DVIP will charge each member a small fee for this service. I am suggesting that $3 a month per contributor should be sufficient to keep this management company solvent and profitable. But more business analysis needs yet to be done to determine if this $3 fee will be sufficient.

By taking a flat fee per contributor per month, DVIP is under no direct economic pressure to deny disability claims. If a disability claim looks like it some medical validity to it, it should be accepted.

I also suggest another $1 per month per contributor. This money should to a reserve that DVIP managers can use to bolter a particular IP that is not doing so well. In this way, beneficiaries still get a reasonable benefit and the IP still has some credibility to warrant further contributions.

And I also suggest another $1 a month goes into a fund to investigate possible fraudulent cases. If DVIP becomes a popular program, DVIP members will be excellent watchdogs for possible abuses or fraud. If they see something wrong, they can report their observation to DVIP, who will then determine whether an investigation is warranted.

By taking a flat fee per contributor per month, DVIP is under no direct economic pressure to deny disability claims. If a disability claim looks like it some medical validity to it, it should be accepted.

Another tool to minimize fraudulent claims is inherent with the member slowly building up his IP shares. When a member joins DVIP, his first few month of contributing will buy only a few shares in UIP, SDIP, and LDIP. But these shares won't be enough to provide a reasonable income, so anyone who thinks they can enter this plan with a minimal investment to get a lifetime income is mistaken. Such people will put their money elsewhere to get their free ride.

If a DVIP member wants immediate disability coverage, he should buy a disability policy with a traditional insurance company. When his SDIP and LDIP shares are of a sufficient amount to provide a disability income, he can terminate the policy from the traditional company.


Pre-existing Condition

Traditional disability insurance policies won't cover pre-existing conditions. In other words, if a claimant is disabled because of a previous disability before the policy was purchased, that policy will not pay the claimant any money. If a disability looks anything like a pre-existing condition, the claim stands a good chance of being denied. For example, I have a disability insurance policy with my employer. If my chronic fatigue syndrome appears again, I'm sure this policy will not cover this ailment.



DVIP, through its SDIP and LDIP, will not make pre-existing conditions part of its policy. In other words, if a DVIP member has a re-appearing previous disability after the member buys into DVIP, DVIP will cover him to the extent of the shares purchased.

DVIP will take this lack of pre-existing conditions to an extreme. If a disabled child seemingly has little chance of ever being gainfully employed, a DVIP policy can be set up on behalf of that child. Very likely, that policy will emphasize LDIP shares, but minimum payments will be made to the other IPs. When the child reaches maturity to draw an income from DVIP, this young adult can then use her UIP shares for six months, then her SDIP shares for two years, and then rely on her LDIP shares for income for the rest of her life.

With DVIP, pre-existing conditions become irrelevant.


Minimum and Maximum Age

Disability insurance should be a replacement of a working income. Therefore payments from SDIP & LDIP (and UIP) should replicate those years. I recommend 19 as the minimum age to be receiving such benefits even though young members may be contributing to these funds a lot earlier in their lives. The maximum age should be 75. At this time, the LDIP payments stop and the PIP payments start.


When Premiums Stop

One fault with traditional disability insurance programs is that the policy terminates when premiums stop. Premiums stop mostly for two reasons: 1) the individual is having cash problems and needs the money in other places or 2) the individual has a company plan-and is no longer with that company. In both of these cases, the individual is no longer covered for a disability income.

DVIP members earn shares as they contribute. If they stop contributing-for whatever reason-these shares do not disappear. They can be used to apply for income protection five, 10, or 20 years later even though the DVIP member has not contributed to DVIP in all this time.


Transition between UIP, SDIP, LDIP, & PIP

Previously I have explained that disabled people will move from UIP to SDIP to LDIP to PIP. A disabled DVIP member makes these decisions (when the plans allow), which will most likely be based when the later plan pays better than the earlier plan. This decision is final: the member cannot move back to an earlier plan.

If the member does return to the workforce (or perhaps just wants to be a contributor again to build up shares) and the disability manifests itself again (or really never did leave), then some provision could be provided for the member to move back to an earlier IP based on the time being a contributor again. I recommend that for each two months as a contributor, DVIP sets the disability clock back one month to determine whether the member could be UIP, SDIP, or LDIP. But this is a fine-tuning detail for later in DVIP development.

Once the PIP is declared, there is no going back to UIP, SDIP, or LDIP or being a contributor again.

As the disabled member moves from one IP to the next, she takes financial pressure off the IP she has just left. This helps the IP recuperate and build up its benefit-per-share.


Model of UIP, SDIP, LDIP, & PIP

I have created a 25-person society contributing to and benefiting from a DVIP, with UIP, SDIP, LDIP, and PIP. The assumptions are as follows:

The older people are at the top of the list; the younger at bottom.

Each member contributes $100 a month.

Minimum payment to each IP is $5 per month.

The contributions to the various IPs reflect the self-interest of four different age groups. The youngest allocates its UIP/SDIP/LDIP/PIP in a 50/30/15/5. The second youngest is 25/30/25/20. The third is 10/15/15/60, and the oldest is 5/5/5/85.

This plan has a 20-year reserve for each fund.

The reserve is being reinvested for a return of 0.2% per month

Atushi has been drawing on the LDIP for ten years. He is set to turn 75 soon, so he will be forced to move from LDIP to PIP.

Vladimir is a young disabled person. For the past four years, some generous person has been buying him DVIP shares, focusing on LDIP. He will be reaching the age of maturity soon and formally applying for disability income from DVIP. He will have to start with UIP though.

The tables emanating from this UIP/SDIP/LDIP/PIP models are too complex to display in this website. If you want to follow the math of this story, please download the EXCEL file to see how the numbers work.

[Download DVIP.XLSX]


Month X

All IPs are able to meet their current reserve requirements, so no changes to any benefit-per-share are warranted.


Month X+1

Because of his age, Atushi is forced to move from LDIP to PIP.

Vladimir decides to start collecting from DVIP, based on his life-long disability. However he first has to spend six months on UIP. Then he spends 24 months on SDIP. After that he can start collecting from LDIP, where he has a good number of shares. In other words, his first 2.5 years on DVIP won't be giving him much money; he needs to put this time before he can collect LDIP. If the goal was to use DVIP to provide an income for a lifelong disability, maximizing the LDIP is the best choice.

Shawn finds a job. He is no longer unemployed and becomes a contributor again.


Month X+2

Hilda recovers from her disability. She goes back to work and becomes a contributor again.

Joseph has just reached his 24th month of SDIP. He now has the option to move into LDIP. His SDIP benefit is $278 (103.06 x 2.70). LDIP benefit would be $270 (71.17 x 3.80). He chooses to stay with SDIP for the next month.

Pierre is moving away from his youth objectives for DVIP. He adjusts his contributions away from UIP.


Month X+3

Joseph checks his SDIP/LDIP option for next month. SDIP will pay $289; LDIP will pay $278. He will stay with SDIP at least one more month.

Dohan was drawing UIP because he had a recreational injury that hasn't yet healed. He has reached his sixth month of UIP. He now has the option to move into SDIP. His UIP benefit is $257 (43.57 x 5.90); his SDIP benefit would be $343 (122.69 x 2.80). He will move to the SDIP next month.

Bonnie decides to retire. She compares benefits between UIP and PIP. This comes to $826 vs. $422. She declares herself as unemployed for this month.


Month X+4

Aluk passes away.

Joseph checks his SDIP/LDIP option. SDIP will pay $299; LDIP will pay $285. He will stay with SDIP for another month.

Dohan moves from UIP to SDIP.

Bonnie checks her UIP/PIP option. UIP will pay $731; PIP will pay $396. She will stay with UIP for another month.


Month X+5

A new young worker, Zeke, enters the DVIP.

Joseph checks his SDIP/LDIP option. SDIP will pay $299; LDIP will pay $292. He will stay with SDIP for another month

Bonnie checks her UIP/PIP option. UIP will pay $658; PIP will pay $423. She will stay with UIP for another month.

Farok is unemployed.

Otto has healed from his injury. He goes back to work and becomes a contributor.


Month X+6

Joseph checks his SDIP/LDIP option. SDIP will pay $309; LDIP will pay $299. He will stay with SDIP for another month.

Bonnie checks her UIP/PIP option. UIP will pay $582; PIP will pay $423. She will stay with UIP for another month.

Marciella has been unemployed because an illness. She is now eligible to move into SDIP. UIP will pay $335. SDIP will pay $270. She will stay with UIP for another month.


Month X+7

Vladimir is eligible for SDIP. He will not base his decision on whether UIP or SDIP pays better. He wants to get to LDIP as soon as possible, which is 24 months from when he declares SDIP. So he moves to SDIP.

Joseph checks his SDIP/LDIP option. SDIP will pay $309; LDIP will pay $306. He will stay with SDIP for another month.

Bonnie checks her UIP/PIP option. UIP will pay $514; PIP will pay $478. She will stay with UIP for another month.

Marciella checks her UIP/SDIP option. UIP will pay $296; SDIP will pay $270. She will stay with UIP for another month.


Month X+8

Joseph checks his SDIP/LDIP option. SDIP will pay $309; LDIP will pay $313. He will change to LDIP next month.

Bonnie checks her UIP/PIP option. UIP will pay $409; PIP will pay $535. She will change to PIP next month.

Marciella checks her UIP/SDIP option. UIP will pay $236; SDIP will pay $270. She will change to SDIP next month.


Month X+9

Joseph, Bonnie, and Marciella have advanced into their IP progression. Some pressure is taken off the UIP and SDIP, and some pressure has been added to the LDIP and PIP.


Month X+10

Nothing new happened.

Following is the changes in benefit-per-share for the four plans between Month X and Month X+10:

• UIP: $5.70 to $5.60
• SDIP: $2.70 to $3.10
• LDIP: $3.70 to $4.50
• PIP: $1.70 to $1.80

Comments about the Example

I believe this example provides a good look at how DVIP members would react with the four most important IPs:

1. Members will contribute in a way that best suits their self-interest.
2. Making minimum payments to IPs that really don't suit that self-interest helps keep each IP fiscally solvent.
3. If members need benefits, they move from UIP to SDIP to LDIP to PIP in a way that best suits their interest. In this way, members move out of IPs that are fiscally weaker and into IPs that are stronger.
4. The maintenance of a multi-year reserve, especially with its reinvestment income, helps keep the IP fiscally solvent.
5. The slight monthly adjustment to the benefit-per-share, based on how well the reserve is being maintained, helps keep the IP fiscally solvent. If the IP is losing solvency, members drawing benefits should be able to predict a decrease in income, and this decrease will be gradual.

However, this example has some flaws to it.

1. 25 members is really not a big enough sample.
2. 10 months is not long enough duration.
3. This example had about 15% of members changing their participation in DVIP somehow each month. Real life will probably be around 5%.
4. Such changes were based on showing how DVIP works (in a short duration). Using more actuarially sound changes would be more realistic.
5. This example had only one plan available for member to participate in. DVIP should have several plans for members to choose from, based on their self-interest.
6. I will be introducing more IPs later.
7. I will be introducing 'plans' later.

SDIP & LDIP & Part-Time Income

Similar to UIP, beneficiaries of SDIP and LDIP should be allowed to find part-time work without having their total part-time income deducted from their benefits. There will be a formula that allows a disabled worker to earn more money (benefits + part-time income) than just relying on benefits.

I believe this part-time income will often play an important part in their recovery. Having a job gets people out of their house, meeting other people, seeing other opportunities, and bringing self-esteem of being a contributor to society. When government and private disability programs actually discourage part-time incomes, society loses some of its potential.

But now it is time to introduce more IPs.

Education Income Protection (EIP)

Foregoing a working income is often a serious consideration to attend technical school, college, or university. Even though a higher level education usually provides more lifetime income, sacrificing current income to get that education is a big impediment to many people. The EIP will make that decision a lot easier for both young adults and middle-aged adults looking for education to move them into another career.

Similar to the other plans previously mentioned, all contributing members buy shares into the EIP. If entering post-secondary education is a short-term objective, these members will be directing most of their DVIP contributions towards EIP, and only putting the minimum into the other IPs. If education is not a priority, these members will be buying only the minimum shares in EIP.

Let's consider a 16-year old who is showing promise for university, but her family's income is not sufficient to fully support her. It is likely she will have to take out some loans. However, she does have a part-time job. For the next two years, she contributes $100 a month to DVIP, with most of that money buying EIP shares. She could receive a benefit of several hundred a month to cover living expenses while in university.

When she is ready to attend university, she informs DVIP of her intention to benefit from her EIP shares. When DVIP gets confirmation from her institution that she attending, it starts making monthly EIP payments to this former contributor. When university session is over and the young lady has her summer job, she can become a contributor again, choosing the plan that best provides with an EIP income for the next session.

While building her EIP shares to reduce the cost of her education, this young women is also building her other IPs. Regardless of the outcome of her educational goals, she will attain a certain level of income protection in other areas that she can use later in her life.

It is quite possible for the woman's family to start contributing a lot earlier to her DVIP with the intention of fully covering her living expenses by the time she is in university.

Or let's consider a young man who has no interest in post-secondary education when he finishes high school. But he finds value in other IPs and becomes a DVIP member. However, he is "forced" to make minimum payments to EIP. When he reaches 30 years, he has a more positive attitude to education. After 12 years of minimally contributing to his EIP, he now has a good source of income to take on that education.

Most likely, he will come this conclusion before he actually enrolls. He should alter his DVIP strategy to enhance his EIP income in the several months between his decision to further his education and actual enrollment.

For many DVIP members, the EIP of DVIP will alter their decision-making process to acquire higher education.

Care Giver Income Protection (CGIP)

If a person is in a life position of caring for someone else, he can use his CGIP shares to provide an income in these times.

Care giving can include babies, toddlers, and children. It can include an infirm relative, whether that person be elderly or a young person with a life-long disability. If the DVIP member is the primary care giver and has chosen to forego a working income, he could apply to receive CGIP as per then number of shares he holds and the current benefit-per-share.

Having the CGIP in place will make the decision to become a primary care giver a lot easier. With some CGIP benefits coming in, there will be reduced financial stress while being a care-giver.

And if care-giving seems to be likely life outcome a few months in the future, the DVIP member should alter the contribution strategy to enhance the CGIP income.

And it should be noted that care-giving position could last many years. Except for being 75 years old when the member should be forced to change to PIP, there should be no limit to the duration of being a care-giver and receiving CGIP benefits.

Finally, if a care-giver is able to work part-time, his CGIP benefits should only be partially reduced because of this part-time income. DVIP should encourage care-givers to go in this direction if the time and energy permit to be both a care-giver and part-time income earner.

Death Income Protection (DIP)

People do die in their middle age. This means it is possible that DVIP contributors could put a lot of money into DVIP and not have got much back. On one hand, that member should be considered fortunate not to have required much income protection during his life. On the other hand, that member will likely be leaving behind dependents.

DIP is a form of life insurance within DVIP. When a member dies, DVIP pays the benefit (the product of number of shares and the current benefit-per-share) to the beneficiary or estate.

DIP remains active throughout the working of the DVIP member. However, when the member applies for PIP, her DIP shares are forfeited. In this way, the members fortunate enough to reach retirement age have actually paid for the benefits of those who will not make it that far in life.

Survivor Income Protection (SIP)

When a DVIP member passes away in middle age, she often leaves behind some dependents. These dependents have lost an indirect source of income, and DVIP can provide that some income through SIP.

When SIP is activated, the benefit per survivor is calculated (the product of the number of SIP shares held by the deceased and the current benefit-per-share rate). Each survivor gets the monthly payment until: 1) five years after death for a spouse, 2) age of 19 for a juvenile, 3) age of 25 for a young adult while still in post-secondary education, and 4) a severely disabled dependent for the rest of that person's life. This monthly benefit will change as the benefit-per-share changes, but it will be a reliable source of income for these survivors. There is no limit to the number of survivors, but they must have a history of living in the same household as the deceased to be eligible.

Unlike other IPs, survivors can still contribute to DVIP while receiving SIP benefits because these benefits are actually originating from the deceased.

Unlike the DIP, SIP can continue into retirement. At that stage in life, the most likely eligible survivor will only be the spouse.

If a DVIP member finds he has a terminal illness, he should alter his DVIP contribution strategy towards DIP and SIP.

Extra Pension Income Protection (XPIP)

Because of the long nature of PIP benefits being paid out, it is quite possible that a PIP could come into a state of financial stress. This will force a long slow decline in the benefit-per-share, and PIP beneficiaries could see significant reductions in their PIP benefits.

To counter this possibility, DVIP members would be buying share into the XPIP. When the member turns 85 years old, she can apply for the XPIP. At this point, the member will decide between PIP and XPIP and that decision would be based on which IP is paying more. The member can make this decision any time after the age of 85. But once he moves into XPIP, he cannot move back to PIP.

The movement from PIP to XPIP takes pressure off the PIP. The PIP is in a better position to recover and maintain its reserve and keep its benefit-per-share constant. The XPIP is less likely to encounter fiscal instability because the higher morbidity rates of the 85+ people means that few people are going to beneficiaries for a long time.

I recommend that DVIP members contributing mostly towards their retirement focus their contributions towards the PIP. The minimum payment to XPIP is just a back-up in case the retiree lives a long time after retirement.

Extra Long-term Disability Income Protection (XLDIP)

Similar PIP, the LDIP could sustain a slow gradual decline in benefit-per-share. The XLDIP would be the IP to counter this possible trend.

After five years of being on LDIP, the member could apply for XLDIP. If the XDLIP pays better than the LDIP, the member should move. Such a move would take pressure off the LDIP, allowing it to recover.

I recommend members keep their XLDIP contributions at the minimum. For most members, the possibility of becoming disabled for longer than 7.5 years is remote. But XLDIP is a good backup.

When DVIP Contributions Stop

One big fault with private insurance plans is when contributions stop. In nearly all cases, the recipient is no longer covered. For example, a worker has been covered for disability insurance by his employer of 10 years. He is laid off, and his coverage ceases immediately or within the next few months. The worker may not be able to find a job with similar disability coverage. Or the new job or unemployment insurance may not provide income to afford another private plan. If this worker becomes disabled, he will not be getting benefits.

But if he had some SDIP or LDIP shares, he would still be covered regardless of his life situation after he leaves the company.

Shares in DVIP do not disappear because the member is no longer contributing to DVIP. A member may contribute faithfully for 10 years, find the expected IP benefits satisfactory, and stop contributing. If this member needs income protection benefits 20 years later, the shares would still be place to get the benefits as determined by the number of shares multiplied by the current benefit-per-share.

The member can change jobs, take a sabbatical from the workforce, or go through some personal crisis where his usual DVIP contributions are better used elsewhere-without having any loss in coverage. In other words, DVIP becomes a much better vehicle for maintaining life-long income protection coverage than by going through more than a few providers in a lifetime.

Re-investment Income

The four-IP example I provided earlier (UIP/SDIP/LDIP/PIP) shows how the reserves of each IP provide a continual source of income for that IP. This, in turn, helps keep the benefit-per-share at a higher level.

It should be fully understood that when a monetary contribution enters an IP, the only way it can leave that IP is through a benefit paid to an eligible member. The funds cannot be transferred to another IP; the management company cannot use-or borrow those funds-for any reason. If an IP buys a particular investment, that investment is owned by the IP. If the investment brings in some interest or dividend revenue, that revenue belongs to the IP. If the investment is sold, the proceeds belong the IP. While the management company will be making the decisions about the investment, the investment always belongs to the IP.

Summary of Primary IPs

UIP, SDIP, LDIP, PIP, EIP, CGIP, DIP, SIP, XPIP, & XDLIP are the 10 primary funds of DVIP. They cover all sorts of situations where people no longer have an income. DVIP members could get all this income protection with just one provider.

And this provider has no direct financial incentive to withhold benefits from its members.

I suggest the monthly minimum contribution to each IP be $5. Between the 10 IPs and a $5 month management fee, the minimum monthly payment comes to $55 for the primary IPs. The member should be contributing more money towards her preferred IPs.

But $55 a month is a big payment for many families. Maybe DVIP should lower its minimum payment to $2 per month per Primary IP. An appropriate fee structure will likely require further analysis of the DVIP.

There should be a maximum contribution as well. While DVIP allows members to change their contributions towards IPs to suit short-term needs, members-especially new members-should not be allowed to buy many shares of a needed IP in a very short time. DVIP is best suited for members looking a long term comprehensive income protection. I recommend that the maximum monthly contribution be set at $250 a month.

I also recommend a limit for the maximum benefit of any primary IP. The objective of DVIP should be to prevent destitution, not maintain a somewhat extravagant lifestyle.

Secondary IPs

There are other situations in life that take away from a person's income. DVIP will set up IPs to cover these situation.

Secondary IPs will have a different calculation than primary IPs. Rather than benefit-per-share, secondary benefits will pay a %-benefit-per-share. This will be better explained in the first secondary IP: DenIP.

Another big difference with secondary IPs is that members can draw benefits from secondary IPs while still contributing to their overall DVIP.

Dental Income Protection (DenIP)

Let's assume a young couple have their first baby. The family history is that both parents needed a lot of orthodontics, meaning this child is likely to incur a lot of dental expenses while growing up. This family is proactive and puts their child under a DVIP plan, emphasizing DenIP shares. It puts $96 a month into this child's DVIP. Five dollars is the management fee; $50 are primary IP minimums; $3 are the other secondary IP minimums. This leaves $38 a month that go into the DenIP.

The child is nine years old when she encounters her first serious dental work. The bill comes to $3200.

At the time of this bill, the family has purchased 41.04 DenIP shares for this child. At the time of the billing, each share pays 1.38% of the bill. So 41.04 shares means that this DenIP pays 56.63% or $1812.

The DenIP will have a similar design to the primary IPs. There will be certain reserve to maintain; there will be gradual increases or decreases to the %-benefit-per-share to help keep that reserve stable.

As time passes, this family will probably increase the DenIP shares for this child, who incurs more serious dental expenses over the next few years. If the %-benefit-per-share is somewhat stable, a higher proportional will be paid by DVIP.

While the family is focused on the child's DenIP shares, all those minimum payments are preparing for this person for income protection for the rest of her life. When reaching adulthood the family will hand over control of the child's DVIP to the child. She can continue buying more DVIP shares based on her income protection needs as a young adult. If she chooses not invest more money into DVIP, she still has all the shares her family bought for her as a child. When she turns 85 years old, she can even benefit from her XPIP shares (purchased by her parents) even though she has not contributed anything to DVIP in the past 60 or more years.

Medical Expense Protection (MedIP)

I'm from Canada and most of my medical expenses are covered by the government. But some things are not, especially pharmaceuticals.

The MedIP will covered anything a doctor prescribes but is not covered by the federal and provincial health plans. This will not only include pharmaceuticals, but medical testing, physiotherapy, optometry, mental health, etc. DVIP should strive to be quite inclusive with MedIP, including the new and very expensive drugs developed by the pharmaceutical industry.

Similar to DenIP, there will be a %-benefit-per-share for MedIP.

Alternative Health Income Protection (AltIP)

There are other health care providers who are not quite accepted by mainstream medicine. These include chiropractors, massage therapists, midwifery, acupuncturists, supplement specialists, counsellors, etc. If these practitioners help people with their health issues, DVIP should provide a mechanism for this kind of income protection.

Unlike the medical profession, this side of medicine is not as well regulated. DVIP should not be accepting any receipts for a benefit. Rather the practitioner should apply to DVIP to become approved practitioner. After a little investigation and determining the practitioner meets some minimal standards, clients of that practitioner can have some of their payment covered by AltIP.

Facilitated Care Income Protection (FacIP)

Some people are or become unable to take care of themselves. They either need professionals to come into their homes (e.g. nurses, health care aides, cleaners, etc.) or be moved into facilities that can provided this care (e.g. nursing homes, psychiatric homes, treatment centers). FacIP can pay for a percentage of these expenses-if the government does not provide full service.

DVIP members getting this benefit can also draw benefits from the primary IPs (most likely SDIP, LDIP, and PIP). When drawing from a primary IP, however, these members can no longer contribute to DVIP. In this case, the member can no longer purchase more FacIP shares to increase the percentage of the facilitated care bill paid by DVIP. So the member has to do some financial analysis about how best to implement her DVIP plan.

Travel Health Income Protection (TrvIP)

While travelers have options to purchase insurance from various providers, sometimes the coverage is not there. Quite often, the reason for the denial is that traveler does not read and understand all the finer details or disclose any possible pre-existing conditions that warrant a higher premium. Travelers are still taking health insurance risks because they never know how well the insurance policy will hold up.

With TrvIP, DVIP members would have a percentage of these expenses paid for based on the number of TrvIP shares they hold and the current %-benefit-per-share rate. No assessment of their health risk is necessary.

Legal Expense Income Protection (LegIP)

Going through the criminal, civil, or family law systems, legal bills can be very expensive. The LegIP covers this possibility in a person's life.

It should be stated that LegIP does not take any side in the dispute. And it does not care whether the judgement goes for or against the DVIP member. It will pay a percentage of the legal bills as the legal process unfolds. It should not pay, however, any expenses relating to the judgement.

The legal process is often a lengthy process. When a DVIP member knows a legal process is going to be a big part of his life, he should alter his DVIP contributions to buy more LegIP shares. When the legal process is over, the member should return to regular contributions.

Other Secondary IPs

I have listed six secondary IPs that I think should supplement the 10 primary IPs. Five of these six are health related; one is not. If there is one non-health related IP, then maybe there are reasons for others. How about:

• vehicle repair,
• veterinarian expenses,
• travel inconveniences, and
• home damage

There may be other emergency situations that require a big payment of some kind. If DVIP does go this way, it should have a minimum amount that can be claimed (maybe $1000).

Or maybe DVIP can cover all these situations (including legal) with an all inclusive primary IP to deal with Life Emergencies (LEIP). DVIP members buy shares in this IP. If an emergency happens, the members can get a benefit-per-share to cover some of the cost of that emergency. But because there could be a lot of abuse of this fund, there should be some rules like (1) when benefit is paid out, half the LEIP shares are forfeited, and (2) the payment can only be enacted once every two years.

Or maybe DVIP should have a disaster IP to deal with bona fide disasters such as hurricanes or floods or serious car accidents. If a DVIP member is in a disaster zone and has reasonable proof of loss, she can get a LEIP payment to help her through the post-disaster trials.

Or maybe the UIP is satisfactory for this purpose.

There may other primary and secondary IPs worthy of consideration. But since DVIP is in its infancy, maybe the 10 primary IPs and 6 secondary IPs are enough to generate the interest needed.

Summary of Secondary IPs

I have listed six secondary IPs: DenIP, MedIP, AltIP, FacIP, TrvIP, & LegIP.

Secondary IPs differ from primary IPs. Secondary IPS have %-benefits-per-share rather than benefit-per-share. As well, members can collect benefits from secondary IP while still contributing to DVIP.

Secondary IPs should also have a minimum payment. If the primary IPs' minimum is $5 a month, I recommend a $1 a month for each secondary IPs. If the primary IP minimum is $2, I recommend $0.50 for a secondary minimum. Even if a member sees no use for a secondary payment, he must still make the payment to help keep the IP solvent for other DVIP members-and recognize that the other members are helping his preferred IPs solvent with their mandatory contributions.

Secondary IPs should pay a maximum of the total cost of their claims submitted. I recommend 80%. In this way, the claimants are somewhat responsible for keeping the costs down to help keep the IP solvent.

Different DVIP Investment Plans

The ever-changing benefit-per-share and %-benefit-per-share could be an impediment to the general acceptance of DVIP. For some reason, people want a guarantee with their public and private income support systems and having a fixed stated amount (often tied with an automatic inflation adjustment) seems the norm. DVIP cannot provide this guarantee. However, by allowing DVIP members to contribute into different plans of DVIP, a more stable income protection will be attained.

Rather than getting into a detailed explanation of a DVIP plan, I'm just going to demonstrate one plan called "Safety First."

Safety First

Safety First is a DVIP plan that is designed to provide a small, but reasonably consistent, benefit from its IPs. Its specifications are listed below:

• Reserve fund based on 25 years of current benefits
• Reserve fund invested in short-term government bonds
• Maximum benefit from a primary IP is $1,000 per month.
• Maximum benefit from a secondary IP is 60%.
• Maximum change per primary IP share is $0.05 per share.
• Maximum change per secondary IP share is 0.1% per share.
• Thresholds to effect a change to the benefit-per-share or %-benefit-per share shall be +/- 20% of the targeted reserve.
• When drawing from the UIP, the member forfeits 5% of UIP shares each month.

Safety First will produce very stable benefits-per-share and %-benefits-per-share. The benefit a DVIP member sees from an IP today will be similar to the benefits she should see five years from now. A big reason for this stability is the 25-year reserve. All 16 IPs of Safety First will be required to maintain this big reserve.

Even if many DVIP contributors leave Safety First and are not replaced with new contributors, all the IPs of Safety First should still be quite stable. The re-investment income will provide enough revenue to pay out current benefits. And natural mortality will also reduce the amount of benefits being paid. The size of the reserve may dwindle with time, but the benefits-per-share and %-benefits-per-share should remain consistent. At worst, they will have a very slow decline.

A second reason for Safety First for being so stable is the maximum benefit from a primary IP of $1,000 a month. In this way, benefits won't drain a primary IP quickly, thus keeping the benefits-per-share quite high.

The maximum payment of a secondary IP of 60% will help keep the secondary IPs solvent, while providing a reasonable income protection for these members.

I see Safety First as a good plan to start building some income protection for a future disability. I would recommend that young contributors contribute to Safety First until their SDIP and LDIP benefits reach about $1200 (# of shares x current benefit-per-share) a month. This level of protection provides for the possibility of the benefit-per-share decreasing in the next decade or two. But once the $1200 level in these two IP is attained, it is pointless to contribute further because the maximum benefit is only $1,000 a month. The member should stop contributing to Safety First and look for another DVIP plan that best suits her needs.

When the member changes her plan, she still retains all her shares in Safety First. She may never make another contribution to Safety First again. If she had acquired 30.95 PIP share in Safety First by the time she left Safety First at the age of 25, she will have 30.95 PIP shares of Safety First for whenever she retires.

Watch Out

Watch Out is another DVIP plan members can choose to contribute-and eventually benefit from. It has these specifications:

• Reserve fund based on 3 years of current benefits
• Reserve fund invested in growth stocks
• Maximum benefit from a primary IP is $10,000 per month.
• Maximum benefits from a secondary IP is 80%.
• Maximum change per primary IP share is $0.30 per share.
• Maximum change per secondary IP share is 1.0% per share.
• Thresholds to effect a change to the benefit-per-share or %-benefit-per share shall be +/- 5% of the targeted reserve
• When drawing from the UIP, the member forfeits 25% of UIP shares each month.

Watch Out is appropriately named for two reasons. First if there is wise investing in growth stocks, the average rate of return would be much higher than Safety First. Second, investing in growth stocks is risky: even with wise investing, a 25% loss in reserves is possible. To ensure this plan does not quickly become insolvent in such times, there are higher changes in benefits-per-share and %-benefits-per shares to make quick adjustments.

Watch Out is quite volatile. The benefit-per-share and %-benefit-per-share could decrease quite dramatically in a few months. However, the maximum benefit from a primary IP allows Watch Out's members to maintain a certain lifestyle if they need some income protection. However, I have my doubts whether Watch Out could maintain these high payments for a long period of time.

Safety First & Watch Out

Let's see how Safety First and Watch Out can work together for the benefit of the DVIP member. In our Safety First example, we had a young lady build her SDIP and LDIP shares in Safety First to provide approximately $1200 a month. She switched to Watch Out, focusing her contributions to SDIP and LDIP in Watch Out for the next ten years. She becomes disabled and eventually turns to her SDIP shares to provide an income. Safety First would pay her its maximum of $1000 a month. Then her SDIP benefit of Watch Out comes to $2517. She would get a total payment of $3517 from DVIP.

Let's assume her disability requires some very expensive drugs. Her MedIP shares in Safety First are paying 21.4% of this cost; her MedIP shares in Watch Out are paying 40.8% of this cost. Between these two IPs, she gets a coverage of 62.2%.

It may be possible that multiple MedIPs (or other secondary IPs) may technically provide more than 100% of the cost. In this case, the two funds would be prorated such that DVIP pays 80% of the costs (or whatever maximum is set).

When a member is paid from multiple plans or IPs, the accounting must be done appropriately. For example, the $3517 payment would be taken from two sources: $1000 from Safety First's SDIP reserve and $2517 from Watch Out's SDIP reserve. These kinds of details will be left to the accountants to design appropriate protocols.

Other DVIP Plans

But Safety First and Watch Out should be the extremes of the plans DVIP is offering to its members. There should be at least five different plans members can choose from. Each plan will have different specification (amount of reserve, rate of benefit change, minimum payments to IPs, etc.). With these different conditions, the IPs are going evolve differently and organically. One plan may provide a better return for SDIP and attract contributors wanting this coverage. Another plan may provide a better return for FacIP, and members looking for this coverage will be attracted to that plan. Members will picking the plan and IP(s) within that plan that suits their income protection needs.

Please note that a member can only be contributing to one plan at a time. If the member is looking for LDIP and AltIP, he will need to analyze all plans and find the one that gives him the best combination of these two IPs. And, of course, he will be making minimum contributions to all the other IPs of that chosen plan.

While some IPs in a particular plan may be quite stable, other IPs may cycle between good and poor periods of benefits. For example, one plan may currently provide a good benefit for EIP, and this will attract students to contribute to the plan. But as more students start drawing benefits, the benefit-per-share should start decreasing, making this plan less attractive to students in the future. It might be a decade before this plan is again attractive again for students. These cycles are a natural part of DVIP. In time, it should be easier to predict the trends. Members can either study the plans for themselves or rely on professional financial planners to make the predictions.

Regardless of stability, volatility or predictable cycles, members, in their first decade of contributions, should be encouraged to change plans at least twice to ensure a reasonable overall benefit is being paid from the multiple plans if income protection is ever needed. A member who depends on only two plans could encounter a low level of income protection if the needed IP in both plans is paying at a low rate. In business circles, contributing to three or more plans would be called "spreading the risk." Non-business people need to be thinking this way when interacting with DVIP.

With DVIP, not only will members be getting life-long coverage, they will be designing that coverage for themselves.

Disability Coverage: Traditional vs. DVIP

I believe that SDIP and LDIP will be the primary reasons for most people to join the DVIP. The other IPs, while they will be appreciated, will be mostly of secondary importance. Hence I will be summarizing the advantages and disadvantages of both systems.

Issue	Traditional	DVIP	Commentary
Denial of Claims	Economic realities may force an insurance company to deny some disability claims	There is no direct economic incentive for DVIP to deny any disability claim.	DVIP still needs to be vigilant to prevent outright fraud, thus maintaining credibility of the SDIP and LDIP
Immediate Benefits	Traditional policies provide full coverage immediately after the policy is sold.	It may take several years of premiums for DVIP member to gain reasonable disability coverage.	To have reasonable coverage in the early years, a DVIP member could also buy a traditional policy, with the intention of releasing it when the DVIP coverage is sufficient. As well, the insurance industry could create hybrid disability plans, having features of both traditional and DVIP-like policies.
Cessation of premiums	The policyholder is no longer covered when premiums stop.	When a DVIP member stops making payments, her shares are still eligible for disability benefits if a disability occurs.	If a DVIP member finds herself in a personal cash crisis, she can suspend premiums yet still maintain coverage. Buying DVIP shares are life-long coverage.
Employer Benefits	If the disability insurance is part of an employment benefit, the benefits stop when the employee is no longer with the company.	If DVIP is part of an employment benefit, the DVIP shares are still held by the employee when the employee is no longer with the company. The former employee is still covered.	DVIP shares (and their coverage) are transportable over many different employment situations (and unemployment situations).
Stability of Benefits	Traditional policies have a consistent benefit payment, many with automatic cost-of-living increases.	DVIP disability benefits will vary depending on the state of reserves of the various plans.	By buying shares in three or more DVIP plans, the DVIP member should see a fairly consistent disability benefit. But it will not be completely constant.
Other Benefits	None	By making minimum premiums to all the other IPs, the DVIP is getting coverage for other aspects of income protection.	The DVIP member is getting all sorts of different income coverage and can adjust this coverage to suit his needs.

DVIP & Dave Volek

So what is my future with DVIP?

I have to say that I have had a lot of fun writing DVIP. And it has been a great psychological release to finally get all these 15-year-old ideas from between my ears to where others can see them.

The first challenge to move DVIP forward would be to conduct a thorough actuarial analysis. When I put together my ten-month, 25-member, four-IP, one-plan simulation together, I probably spent about 20 hours building the spreadsheet. A more reliable analysis should probably have a 300-month, 1000-member, 16-IP, five-plan simulation, which would be based on historical data of unemployment, disability, etc. That's going to be a lot of research, many hours, and a very big spreadsheet. I just don't want to go there by myself. For sure, someone else is going to have to fund this bigger simulation, which is essential to prove whether the DVIP concept is indeed sustainable in the long run.

If the simulation proves the sustainability, then it's time for some focus testing and business analysis to determine whether DVIP can earn its investors a profit or be run by a government with minimal expense. If so, then then a more comprehensive design is warranted, including a lot of legal writing that anticipates all sorts of angles of how DVIP could be actually used.

I doubt that an organization can just set up a DVIP-like program and proffer it to the world. Very likely, this financial product will require official permission of government regulators. As well, some elements of the life & disability insurance industry are going to strongly oppose this income protection product ever entering their marketplace and will use the political process to frustrate this change.

And finally, there is the marketing of this new idea. To convince a focus group that DVIP is a neat idea is one thing. To convince 100,000 people to put their $100 a month into DVIP for at least five years is another thing.

Taking DVIP beyond this website is far beyond my resources. Someone else is going to have further this concept.

While it would be flattering if someone else would take DVIP further, I would still like to be financially compensated somewhat for my innovative thinking. It is my goal to be working on my inventions full time. Here is how DVIP can help me attain this goal.

DVIP is my 7th fully developed invention. The more inventions I put up, the more likely I will be recognized as an out-of-the-box thinker. If DVIP becomes a popular concept:

• It may provide indirect revenues from my other inventions.
• I could sell some advertising on DVIP. If you are interested in getting your message to DVIP readers, check out my rate sheet
• I could offer consultancy services if a government or private business sets up their own version of DVIP.
• I could receive a one-time, life-long, C$7,500 honorarium from a government or private business as their acknowledgement of a great idea. In exchange for that money, I will provide a link to institutions implementing a program similar to DVIP and sign a document allowing the institution to use legally the DVIP approach for income protection.

I would really like to thank all the readers who have had the patience and interest to reach the end of DVIP. I hope you pass this idea on to your friends and colleagues. Hopefully we will find that "some one else" who can build DVIP (and I fully expect the name is going to change). The world needs a new way of looking at income protection for individuals and families.