Have you ever engaged in any of the following forms of financial and insurance planning?
- Purchasing life insurance
- Estate planning
- Designing an investment portfolio
- Retirement planning
- Setting up a savings plan
Of course you have, because you’re already aware of the need to protect your wealth—after you’ve earned it. But despite all your careful strategizing, you may have overlooked a very important piece of protection. None of these plans or products will protect the source of your wealth—your ability to earn an income. That’s why, in addition to all of the above, every successful person also needs the very best disability income insurance (DI) possible.
No matter how young or careful you are, a disabling accident or illness can happen to you—a car accident…a serious fall or other mishap…or a heart attack, problem pregnancy, or other long and serious illness. Any of these situations could result in your inability to work for a significant period of time—during which you would not be drawing a paycheck. Few people, no matter how well off or careful, are fully prepared to rely solely on their savings to carry them through a prolonged recovery period.
Statistics show that disability is much more commonplace than most people think. According to a recent study, although most people believe they have only a 16% chance of becoming disabled during their working years, the startling reality is that:
- If you’re under age 35, chances are one in three that you will be disabled for at least six months during the course of your career.
- Men have a 43% chance of becoming seriously disabled during their working years. Women have a 54% chance.
- At age 42, it is four times more likely that you will become seriously disabled than that you will die during your working years.
Furthermore, it’s not safe to rely solely on a group policy your employer, business or practice may have purchased. While group DI is often relatively inexpensive and easy to administer, it can also fall short just when you need it most—leaving you in for some unpleasant surprises when it’s too late to correct the situation.
Want to be better prepared? Consider the following:
Learning to speak the lingo
The right disability income policy can help you keep your household going, even if you suffer a long-term disability. But before you go shopping for a DI policy, you need to know what features to look for—and the language the insurance industry uses to describe them. The following terms are part of the language describing high-quality policies, and are what you should look for to get coverage you can count on:
- Non-cancellable: To avoid the possibility of losing your coverage just when you need it most, choose a policy that’s non-cancellable and guaranteed renewable to age 65—with premiums also guaranteed until age 65. With a group policy, you run the risk of being dropped and left unprotected at a time in your life when, due to your age or to a change in your medical condition, it could be very difficult to qualify for coverage under another provider.
- Guaranteed renewable for life: Although premiums may increase after age 65, your policy should be conditionally renewable for life, as long as you are at work full time.
- “Own-Occupation”: Own-occupation coverage defines “totally disabled”—and therefore eligible for benefits—as not able to work in your own occupation even if you are performing unrelated duties in a different occupation. Group coverage is almost never true own-occupation coverage.
- Residual Disability coverage: Through a rider, a good individual DI plan can provide you with protection against the income loss you may suffer as a result of partial disability—even if you have never suffered a period of total disability. This kind of residual coverage is not available with most group plans.
- A choice of “riders”: Riders offer optional additional coverage such as annual Future Increase Option, Automatic Increase and Cost of Living Adjustments, or “COLA”.
Protecting your business or practice, as well as yourself
If you own your own business or are a partner in a practice, you will also want to protect that business, as well as yourself. Special policies, available from the same DI providers who offer high-quality individual coverage, offer your firm protection while you experience and recover from a disability.
To help meet the expenses of running the office while you are disabled, consider a separate type of disability coverage—overhead expense coverage, available for either business owners or professionals. Benefits reimburse your office for expenses such as rent for your office, electricity, heat, telephone and utilities, as well as interest on debts and lease payments on furniture and equipment.
Overhead expense insurance specifically designed for professionals pays some additional costs not included in regular business overhead expense policies—including the salaries of all regular employees except those who are members of your profession. While salaries for the support staff would be covered, for example, the salary of your fellow professionals would not. However, with a high-quality professional overhead policy, at least part of the salary of a professional temporary replacement for you— retained to fill in during your total disability—would be covered.
If you are a partner in a practice or your practice has more than one owner, you will also want to consider a policy known as a Disability Buy-Out or DBO. In much the same way that life insurance benefits can be set aside to fund a buy-out by the remaining partner(s) or owner(s) if one dies, this type of policy is designed to fund the healthy partner’s purchase of the disabled partner’s share of the business. With the proper agreement in place before disability occurs, hard feelings and the conflicts of interest that result from a partner’s disability can be avoided. Furthermore, in combination with the disabled partner’s individual disability income coverage, a DBO policy can allow the business to continue to generate an income for the healthy partner—while the disabled partner is supported by the benefits from his or her individual DI policy.
You’ve already done so much to protect your financial well-being. Won’t you take the time today to consider protecting the source of your income? With the right DI coverage, your family’s economic security is safeguarded, even in the most dire circumstances. And, by purchasing the best disability income coverage you can find, you can rest assured that you’ve added a vital component to your financial protection package.