Are You Protecting Your Lifestyle?

Disability insurance is often misunderstood. While almost everyone gets the need for life insurance, not everyone understands the importance of having disability insurance. Insurance agents have the opportunity to help their clients understand this important coverage. 

Disability insurance protects your earning power should you become disabled and unable to work. It can help protect your lifestyle from a full or partial loss of income. As you well know, the probability of you becoming injured or disabled during your working career is much higher than your probability of dying.

The odds are about three to five times greater that you will become disabled for at least 90 days or longer than the odds are of of you dying. Disability insurance can help bridge this gap in income during a period of disability.

Disability insurance typically comes in two varieties, short-term and long-term.

Short-term disability coverage typically provides income replacement for an injury or disability that lasts anywhere from 30 days to one year. The time frame will vary based on the policy. Short-term disability coverage is a common employee benefit, some employers offer it at no charge. 

Long-term disability policies typically cover a disability that lasts three months or longer. This also includes a permanent disability that limits the covered individual’s ability to work on a permanent basis either in part or totally.

For those who are employed, many employers offer both short-term and long-term disability coverage as part of their employee benefits menu. It’s common for these policies to replace 50% to 60% of the employee’s compensation once the coverage kicks in.

This group coverage generally comes at a reasonable cost and will be sufficient for many of your client’s needs. However, some clients may have situations for which this type of coverage might not suffice. And of course, others who are small business owners, contract employees or otherwise self-employed might not have access to group coverage.

Group disability policies typically have a very broad definition of disability that often refers to the ability to do any sort of work. The policy might require you to work at any sort of job you might be able to do, and then pay you for the difference in your salary from your old job and the new one. In an extreme case this might require someone who is used to white collar employment to work in a fast food restaurant to receive policy benefits.

Disability coverage purchased privately will often have a narrower definition of disability. For example, an oncologist will be considered to be disabled if they can’t work in their field or something extremely close to it. Same with an attorney and many other professions.

Group coverage may not cover some forms of variable income such as commissions or incentives that many salespeople or high level executives might count on as a key portion of their overall compensation. The group policy might limit the covered compensation to the policyholder’s regular compensation.

We recommend that if you have a group plan to avoid having your premium payments deducted "pre-tax", as this can make your benefits taxable if you should become disabled and need to file a claim. Saving a few dollars in payroll tax could decrease your benefits considerably.

Along with that, note that your benefits can be taxable if your employer is paying for your coverage. 

You will need to shop around for a policy and insurance company offering the coverage that best fits your situation. In general, the narrower the definition of disability, the higher the premium. Privately issued policies will as a rule be more expensive than group coverage.

There are a number of factors that will impact the cost and even the availability of a disability policy for you. These include:

• The elimination period. This is the waiting period until coverage kicks in. The shorter the elimination period, the higher the premium. Think of it as a deductible in time.
• Definition of disability. As discussed above, a policy with a narrow definition of disability will cost more.
• Your occupation may factor into the equation, especially if you work in a field that is more likely than some others to result in a disabling injury.
• Your income. The higher the income the higher the premium as the insurance company would have to pay a higher benefit level for a disability claim.

Social Security offers disability benefits, but they are very hard to qualify for. This is not something you should depend on to cover you in the event of a disabling condition.

Should you find yourself disabled and unable to work for a prolonged period of time, this could be financially devastating without the proper coverage in place. 

During these times of Covid, it's more important than ever to make sure you can cover bills like housing, utilities and groceries. In the upper right of this blog is a "Get A Quote" button. Run your own quote and see how much it would cost to insure your lifestyle. If you have questions, drop us a note. 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!