Did you ever ask yourself: What is your most valuable asset? We’re tempted to say “my home”, or “my car”, or “my retirement fund”. But would you have these if you wouldn’t be able to work and get a paycheck? You know you have to protect your car, your home – these are the golden eggs. But how about the goose that laid those eggs – your ability to earn an income? Is your earning power protected? How would you pay your mortgage or utilities if your last paycheck was really your last?
Statistics show that we have 4 (four) times more chances of becoming disabled during our working years, than premature death.
And with 1,500,000 new cancer diagnosis every year in the U.S. alone, we have 1 in 3* lifetime probability of being diagnosed with cancer. *(American Cancer Society)
The good and the bad news
Good news: Medical advances help keep us alive if we have an accident or are diagnosed with illnesses, especially one of the big three: cancer, heart attack or stroke. But the bad news is: they leave us disabled instead, unable to perform all our duties at our job, force us to only work part time, or sometime take time off and relocate for treatment. This all means that your income is also at risk. Can you pay your bills if your paycheck was delayed for only a week? How about a month?
That’s why Disability Insurance (DI) is designed to pay a monthly benefit as an income replacement – to protect your paycheck in case you are injured or you are diagnosed with an illness and can’t work. Even if you work part time or have partial loss of income due to a disability, a residual Disability Rider would allow you to receive a portion of your DI benefit.
When you talk to an agent about protecting your income, you will be asked to provide details about your health, occupation and income. Depending on your age, amount of benefit needed and health history you may need to undergo a medical exam including blood pressure, blood tests and urine sample. But don’t worry, if you’re afraid of needles or want to avoid getting an exam you can ask for a simplified issue Disability Insurance plan. The monthly limit on simplified issue varies from $3,000 to $5,000 maximum monthly depending on each insurance carrier. That’s usually more than enough to cover your fixed monthly expenses, like mortgage, utitlities, groceries etc.
What if I have health issues already?
Have some extensive health history? No worries, you can still get some coverage. Some medical issues may be excluded from your policy, with a possibility to remove the exclusions in the future if your health situation improves. Other medical conditions can trigger a higher premium than normal rates, because you pose a higher risk for the insurance company. Graded benefit DI policies are available for those with a lot of health problems. Graded benefit policies will pay a limited amount (about 35% of benefit) if you become disabled in the first policy year, 66% to 70% if you become disabled in the second policy year, and will pay 100% of the policy benefit if your disability starts third policy year or later.
Disability insurance policies have a fixed premium for the life of the policy – usually until age 65 or the retirement age (unless you make any changes, like increase your benefit or add any other riders that were not on your initial policy). Health issues that occur after your policy was issued would not affect your current rates.
That’s why it is recommended getting a DI plan in place while you’re healthy, secure a low premium (usually expect about 1-2% of your income) and make sure your policy has Future Increase Rider or Future Benefit Increase, which will help your policy keep up with your income increases, allowing you to get additional benefit in the future without having to prove medical insurability.
Must-have DI riders
Most disabilities are considered partial, because if you are still able to do one or more of your duties of your job, you are not totally disabled. Therefore, the Residual or Partial rider is condidered the most important rider you MUST have on a disability policy. Without this rider, your policy may not pay even if you have 50% loss of income and working part time due to a bad back or any other illness. Residual rider will protect partial loss of income, or loss of time from work, due to any disability. Residual rider will continue to pay a recovery benefit even after you have completely recovered medically, in case you still incur a loss of income due to being out of work and losing your customer base. Best example would be a doctor, or lawyer, or car repair shop owner who will have to temporarily close their business and their clients start looking elsewhere for similar services.
Future increase option, or Future benefit increase – will allow you to adjust your benefit as your income grows, without having to prove medical insurability in the future.
Return of Premium Disability Insurance – ROP will return your premiums paid at the end of your disability insurance contract (usually at retirement age 65, or 67). This rider costs an additional plremium, but you can get 100% of your premiums back (including premium for ROP).
Cost of Living Adjustment (COLA) rider or inflation protection, will keep up with the CPI inflation index while you’re disabled and receiving benefits. If your disability lasts few years, $1000 today will not have the same purchasing power 10 years from now. Just think of the gas cost difference in 2001 and today. Cost of living is usually an add-on rider and there is a cost associated with it. If you can afford it, it is a rider recommended to have on a good income protection plan.
Life Guy can help you with disability insurance protection. Our portfolio of disability insurance carriers allows us to find your best available plan. Call the Life Guy today: 239-LIFE-GUY or email Disability@LifeGuy.com