Individual disability insurance is probably the most overlooked insurance product in a person’s financial portfolio. Without protecting your income, your financial plan will crumble.
Pop Quiz: What is your largest asset?
a. Your home?
b. Your retirement plan?
c. Your ability to earn an income?
ANSWER: C. Your ability to earn an income. Why do so many smart people not insure their most valuable asset?
You insure your home against a fire or similar catastrophe. However statistics show that only 1 in 1,200 homes are lost to a fire. You insure your car in case of an accident, but those statistics show us that 1 out of 56 vehicles will be totaled in an accident. But most people never think about insuring their income with disability insurance when your odds of suffering a disability before age 65, one that lasts 90 days or more is an incredible 1 in 8.
Consider this: A 35 year old making 75,000 a year for 30 years till the retirement age of 65, not considering any pay increases will have the ability to earn $2,250,000 in his or her lifetime. But many people do not own disability insurance to protect their income.
“It won’t happen to me.”
I bet you think bad stuff only happens to the other guy. Well to the other guy, you’re the other guy. Last year 47% of all mortgage foreclosures were caused by disability. When someone gets injured or ill, they can’t work. They then lose their job and their income. With no income they can’t pay their mortgage and the bank forecloses on their home. If you thought people lose their homes because they are deadbeats or losers or alcoholics, think again. They are good honest people who merely suffered a disability without insurance to protect them.
“It’s too expensive.”
Disability insurance can be expensive. Figure to pay 1-2% of your gross income for an individual policy, which is why many people reject buying disability insurance. However, based on your chances (1 in 8) of becoming disabled, you can’t afford not to have a disability insurance policy.
You’re On Your Own
Less than 33% of companies offer group disability to their employees, either on a voluntary or non-voluntary basis, which is sad because group disability is very inexpensive and most policies do not require medical background checks. So if you have a pre-existing health condition you can still qualify for disability insurance in most cases through your employer. Even though group disability insurance has some coverage limitations, any company with 3 or more employees can offer group disability insurance for pennies on the dollar. The employees can even pay for it on their own through the company.
What to look for in your personal disability insurance policy.
Okay so maybe you’re saying to yourself that this stuff makes sense and I should start looking into buying my own policy. Well, here is what you should look for;
Do not base your decision on price. Cheap disability policies will have limited coverage. Perhaps they will only cover you for 5 years instead of till age 65. Be careful.
Do base your decision on the financial strength of the insurance company. Your insurance company should have strong claims paying ability and rated at least AA by AM Best.
Own Occupation Coverage: The ability to cover your specialty in the event you can no longer perform those duties but you are well enough to work in another occupation should you so choose. A Must for professionals such as Doctors, Lawyers, Investment Bankers and so on.
Partial Disability Coverage: Believe it or not, some policies do not automatically cover partial disability. Most people are partially disabled before they are declared totally disabled by their physician. Check to see the policy you are considering comes with partial disability or a rider that you can purchase.
Waiting period: You can choose how long to wait to receive benefits should you become disabled, 60,90,180 days or even one year. The longer your waiting period the less expensive your policy will cost. Choose wisely though, if you become disabled you will not receive payments until after your waiting period, making you pay for your monthly bills out of your savings.
Inflation Protection: Buying a policy based on today’s income is fine for now, but inflation will reduce the value of your policy. Inflation protection will keep your benefits in pace with increases in the Consumer Price Index.
We can help. Get a free disability quote by calling 914-633-1717 or or fill out the short form below.