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DISABILITY or INCOME PROTECTION INSURANCE Let’s say you have three assets and you have been wondering if you should insure them: one is worth $20,000, another one is worth $200,000 and the third is worth $2,000,000. Which one would you insure first? Now, switching gears, think about how much money you [or your significant other] would earn over the next 30 or 40 years? That number is what your ability to make an income is worth, probably your greatest asset. If you earn an income and you or someone else depends on that income, you must have disability insurance. So, being convinced that this asset is worth insuring what are the odds of something happening to that asset? 1 out of every 106 people die prematurely
[do you have life insurance?] Your greatest asset [other than your health] is your ability to earn an income – what would happen to you and yours if you lost that ability? That is the bottom line. Disability insurance insures your income. If you do not make an income, you cannot buy income protection insurance. Most individual policies are designed to replace your “take-home” pay or about 60% of the actual income you make. That’s because you do not pay taxes on the benefits paid out by a disability policy as long as you have not written off the premium on your tax return and as long as your employer has not paid for it. If the employer does pay for your disability insurance, any benefits you receive from it are taxable which means that if the policy pays only 60% of your gross income, you're going to come up short. Be certain you know what you are paying for. Features to pay attention to very carefully: Disability policies vary greatly, due to the many variables built into them. One of the most important is the policy’s definition of disability. Some policies pay only if you can’t work in any gainful occupation (aka “any occupation”.) The policy you own should pay benefits if you cannot perform in your specific occupation (aka “own occupation”). Most group policies [those provided by employers] are usually “any occupation”. This is essential. Think for example of a brain surgeon who loses a finger or two – can he still work? Yes, but can he still work at his own occupation? Probably not? You should also pay close attention to the policy’s waiting period (aka elimination period). This is the period of time you must wait after suffering a disability before your benefits kick in. It can be 30, 60 or 90 days, 6 months or even a year. Naturally, the longer the wait the less the premium will be. You need enough cash to cover your living expenses during that time period. How long can you live off of your savings? According to the Housing & Home Finance Agency of the U. S. Government, 48% of home mortgages in default are due to the disability of the homeowner. Is your disability policy portable? If you have your disability policy through work, what happens if you quit? Is your policy non-cancelable and guaranteed renewable? The policy should have inflation protection? What is the Cost of Living Adjustment on your policy? (COLA) Partial or residual disability benefits refer to the benefits paid when your earnings decrease by a certain percentage due to a disability. Policies with this provision will provide for percentage of the disability benefits when you are able to perform, some, but not all of the functions of the your occupation i.e. the brain surgeon turned professor. Please take the time to carefully read the language and provisions contained in your policy. Ask for help from a knowledgeable professional. |