There is an adage in the insurance business regarding the subject of Disability Insurance:
“The odds are good that you will be laid up long before you are laid out!”
While this may be amusing, it is also true. People (males especially) between the ages of 30 and 50 will likely suffer an incapacitating injury or illness before they die. However, for most of us, it may be easier to imagine dying than becoming disabled.
The implications of being totally disabled are frightening. Disability has been called the “living death!” It has far greater economic, relational, and social consequences than dying. Why? Because the disabled person continues to consume assets (food, medication, support services) while no longer contributing to the family’s income. Not only is he/she not contributing, the individual is usually consuming a disproportionate amount of the assets the family needs to live on!
For still unexplained reasons, Disability Income Protection plans have always seemed to lag behind other forms of protection, despite the fact that a long-term disability, which can be catastrophic, happens more frequently than most people think!
Disability Income provides essential protection against the loss of income due to an accident or sickness.
There are two types of coverage: short-term and long-term protection. Short-term coverage usually provides income replacement for a period of three to six months. Long-term coverage starts after a short waiting period and, depending on the policy design, usually lasts 2 years, 5 years or up to age 65.
The definition of disability is critical. The more liberal definition, which of course costs more, defines disability as being unable to do a specific job. It is called an “Own Occupation” definition. For example, if a surgeon has an accident and can’t use one of his hands and can no longer perform operations, he can still receive benefits even though he may be working and getting paid to teach surgery.
Under the more restrictive “Any Occupation” definition, if that same surgeon accepts a position as a teacher, he would forfeit the benefits. Note, however, that an “Any Occupation” definition might be just fine for most occupations. We can help you decide which one is right for you.
A Cost of Living Adjustment (COLA) rider is very important since it adjusts the benefit annually according to the changes in the cost of living index. While not critical for a short duration disability, over a ten- or twenty-year time frame it is essential.
The waiting or elimination period mentioned earlier is also flexible: 30-60-90-120-180 days. Obviously, the longer the waiting period, the lower the cost.
A good policy must be “Non-Cancelable” and “Guaranteed Renewable,” which protects the insured from a company not renewing the policy and raising the premiums.
You can obtain a D.I. policy through an employer group plan or as an individual. The group plans are less expensive but have far more restrictions and caps than an individual plan. What many people fail to realize is that most benefits received under a group plan are taxable!
Highly compensated employees seldom can obtain the level of protection they need under a group plan because of coverage limits. The best way to make up the difference is to purchase a wrap-around individual plan.
Without D.I. protection, you can lose everything you own very quickly as the result of an accident or illness. Don’t gamble with your future.