Brian Gruss Licensed Insurance Planner

Disability Insurance Can Help Protect Your Earning Power

Most of us live paycheck to paycheck. If you are dependent upon what you earn to pay for living expenses, a sudden inability to work because of an accident or illness can be financially devastating. That’s why disability insurance is such an important coverage to own. The reality is that most people have little or no disability insurance to protect them if they were ever faced with this scenario.

One reason for the lack of coverage is cost. Disability coverage can be expensive especially for higher risk occupations. Premium rates are determined based on factors, such as your age, health history, occupation and selected benefits.  Nonetheless, if your premiums amount to 1-3% of your income, consider it a small investment.  Sure you might be able to use the insurance money elsewhere, but if you were to become disabled, what would you do?

To ensure adequate coverage, you need a policy that provides at least 60 percent of your gross income while disabled. Since disability insurance premiums are usually paid with after-tax dollars, the benefits would be tax-free. A policy providing 60 percent of your pre-tax income should provide a benefit that is close to your current take home pay.

You should also consider how the policy defines disability. Some policies only pay if you experience a total disability and cannot work at any job. Partial disability protection is a must. With partial disability protection, if you were able to work part-time during a period of disability, your policy would provide benefits equal to a percentage of your income loss.

Look for policies that are both non-cancelable and guaranteed renewable. With these policies, the insurer cannot raise your premium or cancel your policy if your health deteriorates. Be sure your policy includes an inflation rider that offers a cost of living increase during a period of disability. Another option to consider is a future insurability rider, which permits you to purchase additional coverage as your income increases regardless of health or changes in your activities or occupation. Some companies also offer transition benefits that pay benefits in proportion to any income loss that you may encounter when you return to work after being disabled.

The factors to consider that will affect your rate are the policy’s waiting period and maximum benefit period. If you can afford to delay the start date of your benefits until 90 days after you become disabled, you can significantly lower your premium. However, this means you will need to have sufficient savings to cover expenses until benefits begin. Likewise, purchasing a policy that offers benefits until age 65 is a good idea. Again, you must have adequate retirement income available at age 65 to replace your disability benefits.

Tags: Adequate Coverage, Age Health, Cost Of Living Increase, Disability Coverage, Disability Insurance, Disability Protection, Earning Power, Gross Income, Health History, Inflation, Ins, Insurance Money, Insurance Premiums, Insurer, Living Expenses, Part Time, Partial Disability, Paycheck To Paycheck, Risk Occupations, Tax Dollars

Attitudes About the Effects of Long-Term Income Loss Differ Among Professions

A new study by MassMutual Life Insurance Company suggests that your chosen profession could indicate how you react to the thought of a potential disability.

MassMutual commissioned Harris Interactive during September 2006 to conduct a web survey of 1,023 U.S. career professionals to determine how they would react to a prolonged loss of income due to disability. The insurer requested the survey because they wanted to gauge the reactions of attorneys, accountants, engineers, marketing, advertising and other professional services executives to see if they varied by occupation. The conclusion the researchers drew from their findings is that attitudes differ from profession to profession.

The MassMutual Benefits Barometer Survey: Disability Perceptions, as the study was called, accomplished three objectives. First, it rated the various professionals on their emotional response to long-term disability; second, it displayed common reasons for not owning disability income insurance; and third, it identified resources the different occupational groups have to help pay their bills if they are unable to work.

When it comes to emotional response, advertising and marketing professionals are the most anxious about the possibility of becoming disabled. Sixty-six percent of this group said they would feel financially insecure, and 26 percent answered they would be unprepared emotionally if they became disabled. Forty-one percent responded that they would be worried about being able to work again.

Attorneys and executives in professional services, including information technology and financial services, were less emotional about becoming disabled. Eighty-two percent of the attorneys polled felt they would get well and return to work. However, 70 percent said that they would have anxiety toward their future financial situations, while 44 percent responded that they would feel like a burden to their families. The responses received from executives in professional services were neither overly anxious nor optimistic, as compared to other professionals.

When the responses provided by engineers and accountants were compared to all the career professionals surveyed, this group revealed itself to be the most dispassionate about becoming disabled. A mere 35 percent of engineers responded that they would feel a lack of financial security and only 27 percent of accountants would be worried about being able to work again.

When study participants were asked why they didn’t own disability income insurance, 44 percent said they didn’t feel they needed it, 30 percent said it costs too much, and 27 percent answered that they’re in good health.

The question concerning financial resources available to draw from in the event of a disability also drew some interesting responses. About 21 percent of attorneys surveyed reported they could live on half of their salary for “as long as they had to.” This group was the most likely to have a variety of resources such as stocks, bonds, mutual fund investments, home equity loans and loans from family or friends that they could use to keep them financially stable if they became disabled.

Advertising and marketing professionals were the least financially stable of all the professional groups and the least likely to say they would rely on stocks, bonds, mutual fund investments or a home equity loan to tide them over until they could return to work.

Tags: Accountants, Barometer, Career Professionals, Disability Income Insurance, Disability Insurance, Emotional Response, Financial Situations, Harris Interactive, Information Technology And Financial Services, Insurer, Life Insurance Company, Long Term Disability, Marketing Advertising, Massmutual, Occupational Groups, Perceptions, Professional Services, Professions, Response Advertising, Web Survey

Disability Insurance: Earnings Protection When You Need It Most

You never know when a long-term disability from an accident or illness will strike. If you aren’t prepared, it can devastate you financially. That’s why it is critically important to have disability insurance. It provides a replacement for a portion of your income should you become disabled and unable to work.

Many people don’t see the need for private disability insurance because they believe they are protected by Social Security disability benefits. To be eligible for Social Security disability, you must be severely disabled. In addition, there is a six-month waiting period before benefits begin. The amount of the payment may not be sufficient to cover your family’s needs. Even if you can supplement Social Security with your savings, if the disability continues for a long period of time, you will most likely exhaust your reserves before you are able to return to work. Disability insurance is a far more sensible alternative to finance a long-term disability.

Depending on the amount you earn, the maximum coverage you can obtain will replace 45 to 70 percent of your salary. Your premium cost will depend on how risky your job is considered. Generally, those employed in a professional capacity are considered lower risks than those employed in occupations requiring physical labor. Other factors that are taken into account are your age, your health history, and the overall coverage the policy provides.

If you purchase disability coverage on your own, as opposed to being covered under a work-related policy, the income the policy provides while you are disabled is tax-free. If your employer has a disability plan, it is important to know the amount of coverage, the waiting period, and the length of the benefit period so that you can coordinate your own disability policy with the coverage provided by your employer.

There are several provisions to look for in any disability insurance policy you are considering purchasing:

·   How does it define “disability?” Disability can mean either the inability to perform the main duties of your own occupation, or the inability to perform any duties of any job. Look for the provision that defines disability in terms of your own occupation to get the best coverage.

·   Is there a non-cancellation clause? This means that the insurer cannot cancel your policy or increase your premiums before you turn 65 as long as the premiums are paid on time.

·   Are there residual disability payments? This provides you with benefits in proportion to your lost wages should you remain partially disabled and have to take a job that pays less than what you were earning before you became disabled.

·   Will you remain insurable in the future? This allows you to purchase future coverage without having to be medically insurable.

·   How long will benefits last? Most policies provide benefits until age 65.

·   How long is the waiting period? The shorter the waiting period, the higher your premiums. If you have employer disability benefits, you will want to stretch the waiting period on your personal policy so as to reduce the cost.

Tags: Benefit Period, Disability Coverage, Disability Insurance, Disability Plan, Disability Policy, Disability Protection, Earnings, Health History, Long Term Disability, Maximum Coverage, Occupations, Period Of Time, Professional Capacity, Provisions, Salary, Security Disability Benefits, Social Security, Social Security Disability, Social Security Disability Benefits, Waiting Period