Disability Insurance

Your income is the foundation to the life you've created.

You insure your home and its contents against theft, fire and even flood. You insure your car(s) from the financial impact of auto-related damages or injuries. Perhaps you insure other valuables, such as jewelry, antiques and collectibles. Why not insure what makes all those things possible?

Your income is the foundation to the life you've created. Your income allows you to establish your standards for living and provides for your goals. However, what happens in the event you become too sick or injured to work and earn a living? Unfortunately, disability is much more common than you might think.

The Reality is - We're Vulnerable

Two of the biggest myths about disability are that it doesn't happen to younger people and it's largely the result of work-related accidents. Here's the reality:

  • Just over 1 in 4 of today's 20 year-olds will become disabled before they retire.
  • 90% of all disabilities are caused by illness, while only 10% are the result of accidents.
  • Close to 95% of disabling accidents and illnesses are not work-related.

Disabilities Can - and Do - Happen

The following chart shows many of those who receive benefits suffered a disability within a few years of purchasing their policies.

Alternative Sources of Income

Disabilities can cost millions in lost income and added expenses. There are alternatives for supplementing income, however, most alternatives are short-term, unreliable and inflexible. Consider these points:

Group Long-Term Disability Insurance

Group LTD is a good foundation, however, the need to supplement Group LTD is an important consideration, here's why:

  • Group Long-Term Disability Insurance does not cover bonus income or retirement contributions.
  • Benefits are generally taxed since coverage is employer-paid, significantly minimizing actual benefits received.
  • Group coverage is not individually-owned (can't be customized, can't take it with you if you leave and can be cancelled at any time by employer).
  • Benefit limitations placed on group can leave higher paid individuals under protected.

Individual disability income protection is one of the most reliable and flexible sources of income replacement.

  • Disability Insurance helps keep income strong so your savings, your lifestyle and your future plans can remain on track.
  • Individual Disability Insurance coverage is based on your income, not that of a collective group or Social Security level.
  • Individual Disability Insurance policies can cover base salary, bonuses and retirement contributions.
  • Also, if you pay the premiums yourself, benefits are not subject to taxes.
  • Most Individual Disability Insurance policies come with fixed premiums and non-cancellable coverage.
  • Individually-owned Disability Insurance is portable; if you change jobs or careers you can take your coverage with you.

Questions to Ask When Considering Disability Insurance

When will the insurance company regard me as totally disabled?

The core of any disability income policy, the definition of Total Disability, outlines what constitutes being totally disabled. Different companies use different definitions. Some policies pay benefits if you're unable to perform the duties of your own occupation, even if you are at work in another occupation. Others pay only if you're unable to perform the duties of your own occupation and you're not working in any other occupation. Still others pay only if you cannot work in any occupation for which you are reasonably qualified. 

How much coverage am I eligible for?

Generally up to about 60% of net salary or business income. Factors include your current salary and any other coverage you have (either applied for or in force).

When do benefits start?

A policy's Elimination Period is the length of time that must elapse following the onset of disability before benefits become payable. A common elimination period is 90-days; however, choices are available. You elect your policy's Elimination Period when you purchase your policy.

How long will benefits last?

Typically, disability insurance benefits are payable monthly for a maximum of two years, five years, ten years or to age 65 or 67. Few companies offer benefits payable beyond these periods. Your policy's Benefit Period is determined when you purchase your policy. If you are younger and just beginning to save for retirement, then you may want to consider an extended benefit option; if you are older and have substantial retirement savings, you may not need a benefit that extends beyond age 65 or 67.

Can my policy be changed or cancelled, or my premiums raised?

If you pay for something, then you should own it. A good policy cannot be changed or canceled, even if your health or financial situation changes. It should also guarantee that your premiums will remain fixed until age 65 or 67,as long as you continue to pay them on time.

What if I want to change my coverage?

Look for policies that allow you to increase coverage to keep pace with the cost of living or increases in your income. Some offer optional riders that allow automatic or optional increases every year.Insurers sometimes add restrictions to benefit increases if applicants have reached a certain age - say 55 or 60. SO it's best to ask early.

What if I change jobs or careers?

One advantage of owning your own DI coverage is that it's portable. You par for it,so you own it and you can take it with you if you leave your employer - or if you go into a completely new field or line of work.

What if I'm only partially disabled?

A good policy will pay benefits if you do not qualify for total disability benefits but because of sickness or injury your income has been reduced, or you can only work part-time. Look for a policy that does this even if you don't become totally disabled first. This benefit provision may be referred to as a partial or residual disability benefits, and it may be included in the base contract or attached as an optional rider.

To trigger such a benefit provision, the disability need not be "total," but may require a loss of time, duties, income specified as percentage of your pre-disability earnings, or any combination thereof. The richest policies have the fewest requirements to receive such a partial disability benefits, pay the highest percentage of your total disability benefit, and do so for the longest period of time.

Is there protection for my business in the event I become disabled?

If you own or share ownership of a business or professional practice, you might also consider protecting that investment for the long-term.

  • Overhead Expense insurance provides reimbursement for the ongoing expenses of operating your business or practice if you are too sick or injured to work.
  • Business Reducing Term insurance offers protection for financial obligations that require periodic payments expiring at a given time, such as business loans, professional practice loans and salary contracts or contract performance guarantees.
  • Disability Buy-Out insurance reimburses the owners or partners of a business or professional practice in the event they need to buy out a disabled owner's financial interest in the company.
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