Few people have taken the steps necessary to protect the foundation of their financial future by protecting the biggest and most important asset they have…. their ability to earn an income. A long-term illness or injury would be financially devastating, yet less than 15% of us have disability insurance to protect our incomes! If you have it, congratulate yourself. If you are among the 85% of individuals that have not taken the steps to protect your income read on; you might thank yourself years from now.
The statistics are eye opening and very scary. Approximately half of all foreclosures and bankruptcies in America are a result of an illness or injury. Every year about 1 in 7 workers in this country will suffer a long-term disability and the risk of suffering an extended disability is up to 5 times greater than the risk of dying during your working years.
Ignoring the risk of disability can lead to financial ruin. Consider this: if you have been wise enough to save 10% of your earnings over the last ten years, a disability lasting one year would wipe out everything you have saved! This is why financial planners across the country agree disability insurance is one of the most important forms of protection you can own.
A disability is not just a physical set back but also creates enormous emotional pressure for you and your family when your daily routine is turned upside down. The financial pressure created compounds the emotional demands as worries arise about how the mortgage, car payments, health insurance and other bills will be paid; not to mention the concerns about continuing to save for the kids’ college education and your retirement which will be devastated in an effort to meet your other financial obligations. The financial pressure only slows your recovery, compounding the problems and is often too much for families to handle. A solid disability insurance program can solve a great number of these issues.
Simply stated, individual disability insurance is designed to provide you an income stream if an illness or injury prevents you from working. The product, however, is complicated and there are a number of items that are important to consider. The first and most important is the definition of disability because it determines if benefits are payable. You should consider policies that provide you with a definition that protects you if you cannot work in your occupation. This type of definition can be referred to either as own occupation or modified own occupation. Without this type of definition, the insurance carrier can argue that you are not disabled if you could still work in another occupation (regardless of what that occupation might be) and thus are not eligible for benefits.
Another contractual provision that you need to consider is residual or partial disability benefits. A residual disability benefit will provide additional income when you are able to work but suffer a loss of income. Insurance carriers report that between 70 and 80 percent of disability claims are at some point partial in nature. Consider how important this provision would be if you were to suffer from a progressive disease such as MS or Lou Gehrig’s Disease. How would recovery from a heart attack, back surgery or cancer effect your ability to work on a full-time basis?
Other options that you might want to consider include inflation protection, options to purchase additional coverage regardless of your health, and catastrophic benefits.
What does it cost? After age, gender and medical specialty, the two items that have the largest impact on premium are the waiting and benefit periods. The shorter the waiting period (period of time you must be sick or hurt before benefits are paid) and the longer the benefit period, the greater the premium. The most cost-effective waiting period is 90 days while the two most effective benefit periods are 5 years and to age 67. You can expect your premium to be between 2% -4% of your annual earning. This is a small price to pay for protecting your most valuable asset and your financial future.
Contact Connie Barnes at connie.barnes@profrisk.com for additional information or contact Professional Risk Associates at (800) 318-9930.