Is Life Insurance Through Your Work Enough?

Many of us who are self-employed don't always get to enjoy the perks of group benefits, like medical coverage and paid time off. But for those who do have jobs where the company pays for extra perks, those perks may be good, but not awesome.

One of the issues I run into quite often with people who have "bennies" through work is the idea that their group life insurance program is all they need. For some it may be, but for many people that coverage is much less than what they actually need and it more than likely won't be there if these people leave their jobs.

One of my first real jobs was working for a large company that did offer life insurance. They offered me coverage of my annual salary, which was next to nothing, and I could buy additional coverage, like 2 or 3 times my salary for a few dollars each month. There were no exams or health questions, and I got as much as I could for the price of a coffee at Starbucks. I was single and didn't have much debt, so I figured that if something were to happen to me, my family would have enough to pay for a funeral and maybe even have some hor d'oeuvres. In other words, the life insurance plan was appropriate for my needs.

However, there were co-workers of mine who were married and had children. These folks also had mortgages, car payments and other expenses that I didn't have. I seriously doubt that the small amount of life insurance offered was enough to give their families the safety net they needed if they were to die. And when the company was sold and employees started to jump ship like rats, they lost the little coverage they had.

Having life insurance coverage through your work is good, and most agents will take that into account when trying to determine how much you actually need. There are several other items to consider when you calculate your family's needs.

1. Outstanding debt. Mortgage balance, credit cards and car payments should be included.
2. Final expenses. Funeral costs and other costs associated with dying. For instance, many people will spend time in the hospital before passing away, and those deductibles may need to be met.
3. Replacing lost income. Your survivors depend on your income to take care of everyday expenses, as well as those bills that happen to pop up unexpectedly, like repairs for appliances and vehicles. 
4. Education costs. If you have small children, you may want to include the costs of higher education.

Having life insurance through work is good, but making sure you have enough coverage is even better. If you aren't sure how much you need, Our life insurance quoting tool has a built in calculator that will help you out. Give it a try and in the meantime, stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. 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!

Disability Insurance Awareness Month Part 1

May is once again Disability Insurance Awareness Month, when the insurance industry tries to let the public know the importance of having a disability insurance policy. As I say whenever I sit with a client or talk to a group, the Holy Trinity of insurance is your life insurance, your health insurance and your disability insurance (DI). That's how important it is!

Think about it. If you are sick or hurt and are not able to work, your bills just keep coming. No one is going to let you have a free pass on your car payment, mortgage or phone bill because you are a nice person. In essence, having a DI plan in place is paycheck insurance. That's why people call DI "paycheck protection".

How does it work? Depending on your employment and how you get paid there can be variations. The more common scenario is that you buy a group plan through work or your employer pays for it or both. I have seen instances the employer pays for Long Term Disability (LTD) but the employee pays for their own Short Term Disability (STD) policy.

These types of policies usually pay up to 60-70% of your gross income. Keep in mind that if your employer is paying for your policy and you should start receiving benefits, those benefits will be taxable. This is also true if you purchase your plan through a "worksite*" insurance company and they pre-tax your premiums. 

Short term DI usually pays for the first 3, 6 or 12 months of a disability, while long term DI will start paying after those dates. The key is to make sure you have coverage seamlessly throughout the time you are out of work, which is determined by your physician. 

Also, group plans will typically cover maternity for 6 weeks (8 weeks if a caesarean is called for). Too many people will drop their DI plan when they decide that they aren't having any more children. I always encourage people to keep their policy, as it is not "baby coverage" as many seem to feel.

On the other hand, if you are self-employed or a 1099 employee, like a realtor or insurance agent, you may need to look into an individual DI plan. These are structured a bit differently in that rates will be determined based on factors like:

• Your occupation. A welder or a roofer will pay more than a secretary because their job is more dangerous. 
• Your health, age and tobacco usage. Just like life insurance, the insurance company wants to know if you are a good risk or not. 
• Your income. Determining your benefit amount is dependent on how much money you earn, so the insurance carrier may ask for a copy of your tax returns. We have one company that ask for it when you file a claim. 

Another important factor is the "elimination period", which is like a deductible, but in time instead of money. If you have a 14 day elimination period, that means that the policy won't start paying out benefits until the 15th day of your illness or accident. Elimination periods can vary from 7 days to 6 months, and like the deductible on your car insurance, the higher you go, the less the policy will cost you.

Also, keep in mind that individual plans will not cover maternity.

In Part 2 of this topic we'll discuss how to determine how much coverage you need. In the meantime, please stay healthy!

*Companies that offer voluntary benefits like DI, dental, vision and other ancillary insurance products. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. 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!

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!