How Can Disability Insurance Help Me?

Let's assume you get sick or hurt and are unable to work. You may be in the hospital racking up bills, or worse, in a rehab facility. If you are lucky, you may be recuperating in your home, resting comfortably. Some people can actually function and carry on with most of their day-to-day tasks, they just can't perform the duties of their job. And this is where the real problem is.

As I have mentioned in the past, your number one asset is not your home, business or fancy car. Your biggest and best asset is your ability to earn a living. And if you are not able to work due to a disabling illness or accident, you more than likely are not going to be bringing home a paycheck. 

When I speak to groups about disability insurance I ask them the same question every time: If you are out of work, what happens to your bills? "They keep coming!" I hear from the crowd. 

You see, disability insurance (DI) is insurance for your paycheck. Insuring your income is how you can make sure that you can pay the utility bill, the rent or mortgage, and of course, keep food on the table. As a matter of fact, nearly half (46%) of all foreclosures on conventional mortgages are due to a disability. (Only 2% are due to death)

Won't the government take care of us if we can't work? Sure, the Social Security Disability Insurance program is there for you, but only if you have put in 10 years of work ahead of time. And it pays a whopping $722 each month on average. Plus, the criteria is so strict that only about 35% of those who apply actually qualify. There has to be a better option.

Of course that option is a DI plan. You can purchase one through work or on your own and neither is exorbitantly expensive when compared to the benefits offered. 

Generally speaking, you can insure up to 60-70% of your gross income (close to your "take home pay") and benefits are tax-free with a couple of exceptions. If your employer is paying for your premiums or if you have decided to have the premiums deducted on a pre-tax basis, you could be liable for income tax on your benefits. That's not a great scenario but it is still better than having nothing. 

There are certain factors that go into the underwriting of a DI policy. A few are:

• Your income. A policy based on your income will need verification of your income, so the insurance company may ask for recent tax returns at the time of application. Or they may request your tax returns when you file a claim. Either way, they do not want to pay you more when you are out of work than what you were making when you were healthy. 
• Your occupation. Some jobs are more dangerous than others and that will be reflected in the amount you pay for your policy. A roofer has a riskier job than an accountant. And some occupations are difficult to cover at all, like professional athletes. Fortunately, we have carriers who can insure a variety of jobs, and we even have one who will insure a stay-at-home spouse!
• Your health. A person who is unhealthy will have a harder time finding a policy than the one who is 4% body fat and runs five miles a day. And pre-existing conditions are a factor, but in many instances they may just be excluded from coverage. I had a gentleman client in the Charlotte, NC area years ago with an issue stemming from a previous accident that was excluded. He took the coverage anyway because he it would cover anything else that could happen to him.

How much coverage should you apply for if you are on a budget? I recommend the HUG plan. Coverage for housing, utilities and groceries should be the bare minimum and are essential. As I tell my clients, "Just because you are receiving a check doesn't mean you'll be eating at Outback every night."

If you would like more information on DI, drop us a comment or book a time to speak with us from our website. In the meantime, stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!