The
Circle of Safety: How to Protect yourself and your
family if you get hurt...what to do before it
happens!
By
RCI Insurance Group
What
you’ll discover in this report:
How
to protect your income if you get hurt...
Surprising
statistics on how commonly “average” people
suffer an income- stopping disability...
Why
some kinds of so-called disability insurance are not
enough...
How
much to buy...how much not to buy
Insurance
jargon demystified...and
much, much more!
People
commonly think about insurance for their possessions.
But what about you? What if you get sick, injured or
even die? How do you protect yourself and your family in
these instances?
Remember,
insurance is a game of “What if?” So ask yourself
these questions:
What
happens if you suffer a serious illness or injury that
results in major medical bills and significant lost work
time?
How
do you and your family pay expenses if you are unable to
work for an extended period of time?
These
are obviously not pleasant thoughts, but remember that
“What if?” is a game about worst-case scenarios.
Disability
Insurance
It seems like something
that doesn’t happen very often. You suffer an illness
or injury that prevents you from working for an extended
period of time -- six months, a year, even five years.
Sounds rare doesn’t it?
It’s not.
*
Fact.
On average, you have a one in five chance of
becoming disabled between the ages of 35 and 65. You
have a one in seven chance of becoming disabled for at least five years before you turn 65. If you are 30, you have
a one in three chance of incurring a long-term (at least
90 days) disability before you turn 60. At age 40, the
odds are three in 10. At 50, it’s less than one in
five.
You
actually have a far greater chance of becoming disabled
during your working career than you do of dying. The
chances of disability vs. death are more than six times
greater for younger workers. Yet far more Americans buy
life insurance than they do a policy that can replace
income lost because of a disability.
Disability
Coverage: Lots of Options, How to Choose...
Disability
insurance can replace some or nearly all of any income
you might lose because you are very sick or badly
injured. That sounds simple enough, but there are many
types of disability insurance. Some of it is available
to all of us:
Social
Security -- If you are basically unable to perform
any job duties at all, you probably are eligible for
disability payments from Social Security. But such
payments are not very high and won’t replace most of
your lost income.
*
Fact. Further,
58% of all applicants for disability benefits are
initially denied by Social Security. In addition, you
are eligible for benefits only after you have been
disabled for five months and if the disability is
expected to last at least a year. Finally, any benefits
you receive from Social Security are taxable.
Workers’
Compensation -- If you are injured or become sick on
the job, you are eligible for benefits under your
employer’s workers’ compensation insurance, which
all businesses must have. However, the benefits you
receive vary from state to state and on the level of
your disability. In addition, the benefits are
relatively low and won’t adequately replace income for
those who earn mid- to high-range salaries. Again, the
injury or illness must be job-related, or substantially
job-related.
Disability
Coverage Through Your Work -- Many larger businesses
offer disability insurance at somewhat reduced rates to
their employees as part of a benefits package. However,
these so-called group disability plans likely will have
limits on the income they will replace (say no more than
60% of your salary) and have limitations on the time
such benefits will be paid. Further, the benefits are
taxable, and the coverage cannot be taken with you if
you change jobs.
Personal
Disability Insurance
The
other option for disability coverage, one more and more
Americans are taking, is buying your own disability
insurance policy. Disability coverage is similar to auto
insurance in that you can buy a lot of it or just a
little. How much do you need? In general, it is
recommended that you have enough to replace about 60% to
70% of your pretax income.
*
Note. If
your salary were $5,000 a month, you would need about
$3,000 to $3,500 in benefit payments a month from your
disability policy. But there are a lot of factors to
consider. You should consult with someone experienced in
selling disability insurance to determine how much
coverage you need.
There
are numerous options for coverage in terms of when it is
available. You can buy disability insurance that pays
benefits for just a few months (short-term disability or
STD). Or you can buy coverage for many years or even as
long as you live (long-term disability or LTD).
*
Tip. Generally, though, disability insurance is best used for
longer terms. Buying short-term disability only is
equivalent to purchasing auto insurance for just
fender-benders. It makes much more sense to insure
against a big (long-term) loss in income.
Disability
insurance comes with a waiting, or elimination, period.
That’s the time between when the injury or illness
occurs and when the benefit payments start coming. For
LTD, the waiting period ranges from 60 to 180 days. The
shorter the waiting period, the more the policy will
cost.
Important
Information: What Is a Disability?
When
considering the purchase of disability insurance, it is
vital to look at the definition of disability in each
policy. In addition, you must consider how that
definition applies to your specific job situation.
Disabilities
carry adjectives such as “total and permanent,” “partial”
and “temporary.” Frankly, most disabilities are “partial”
and “temporary.”
*
Tip. As such, if you are considering the purchase of a disability
policy that covers “total and permanent” injuries or
illnesses only, you may be wasting your money.
Disability
policies also have definitions relating to your
occupation. The best, and most expensive, coverage is
that which kicks in when you are unable
to perform your specific job.
*
Example. Say a neurosurgeon loses his or her hand in an accident. The
person could still be a physician, but probably could no
longer perform the duties of a neurosurgeon. By the
definition of so-called “own occupation” policies,
this person is disabled.
In
contrast to “own occupation,” there is “any
occupation” coverage. In this case, if the person can
perform a job that requires the same skills and
training, he or she would not be disabled. In the case
of the neurosurgeon, if he or she could continue to
serve as, say, a general practitioner, that person would
not be disabled. However, some disability policies will
pay some of the difference in salary that results from
having to change job duties.
Please
keep in mind that some disability policies define “any
occupation” to be truly that -- any occupation,
regardless of the amount of skill and training required.
When Disability is Defined as Income Lost...
Some
disability insurers are offering a type of coverage that
doesn’t define disability in terms of an occupation,
but rather in terms of income lost. Say you are hurt and
have to take a job that pays 50% less than the one you
had before the injury.
A
disability policy based on income would replace some,
but not all, of the income lost because of the job
change. A common threshold is the policy will start
paying after you’ve lost 20% of your income. In the
previous example, such a policy would replace 80% of the
income you lost.
Most
disability insurance comes with some built-in protection
for the policyholders in that the insurers offering the
coverage guarantee your policy will be renewed. “Guaranteed
renewable” policies mean that if you pay your premium,
your insurer can’t cancel your coverage or change the
terms.
Further,
the insurer can’t increase your premium unless it does
so for everyone who has a risk characteristic (age, job
type, etc.) similar to yours.
*
Note. The
best option for disability insurance is a non-cancelable
policy, which takes all the elements of a guaranteed
renewable policy and adds a very important feature: a
guarantee that the premium won’t be increased. At
least until you are 65.
*
Tip. As you can see, there are a lot
of options for anyone who wants to buy disability
insurance. As such, it’s no easy task making sure you
get the benefits and coverage terms that best fit your
situation. Discuss this with a specialist in disability
insurance who can help you obtain what you need at a
price you can afford.
