Wealth Management Blog

Posts tagged Disability Income

Find Extra Benefits in DI Insurance

By JJ Burns

April 1, 2013

The odds that you’ll suffer a disabling injury or illness are far greater than the likelihood of you dying prematurely. A disability income (DI) insurance policy, used to supplement life insurance coverage, could help protect you from loss of income if you’re unable to work. Indeed, a DI insurance policy might provide even more benefits than you expect.

Typically, a private DI insurance policy can pick up some of the slack if you’re disabled for an extended time. Should you no longer be able to work, you will begin receiving a monthly disability benefit. Normally, the benefit is a predetermined amount, unlike employer-provided coverage, in which the benefit equals a percentage of compensation.

As with life insurance, DI terms can vary widely from policy to policy. Some key variables include the amount of the benefits you’ll receive; the length of the coverage; the requirements for receiving full benefits; the definition of “disability”; the length of the waiting period before benefits begin; any cost-of-living adjustments; availability of partial benefits; and possible non-cancellation features. Naturally, the cost of the premiums also will vary, depending mainly on those variables.

But don’t assume that you must be bedridden to collect any benefits. Frequently, a DI insurance policy will provide “residual benefits” in the event you can work some of the time or if you’re slowly getting back on your feet. Some policies even offer benefits after you’ve returned to work if you are earning less than you did before your disability.

The residual benefits generally kick in when the loss of income is greater than 20% of previous earnings and the decline is due to the medical condition underlying the disability. This feature could be especially valuable to small business owners, including self-employed entrepreneurs, and professionals in fee-based practices, such as physicians, attorneys, and accountants.

For example, suppose a surgeon recovering from a severe illness returned to practice but was able to see fewer patients. If the surgeon’s income was reduced from $50,000 a month to $30,000, the residual benefit could restore income to 80% of the pre-disability level—in this case, $40,000 a month. Similarly, if the side effects of chemotherapy make it too hard for a litigator to appear in court or for a CPA to handle a company’s books, the residual benefits can soften the economic blow.

To see what your coverage may or may not include, take a close look at existing DI policies or any new policy you’re considering and have your insurance agent explain the residual benefits section. The policy might be more valuable than you imagined or the residual benefits may be too restrictive. Those provisions could be a key component of your DI insurance coverage.

Six Disability Facts to Consider

By JJ Burns

March 21, 2012

You probably already understand the importance of having life insurance. The proceeds from a life policy can help cover your family’s current expenses and may provide a cushion for the future if you die prematurely. But another kind of coverage—disability income (DI) insurance—is often ignored or neglected. And that’s a mistake, because DI insurance can be even more vital than life insurance in maintaining a family’s financial well-being. A new white paper from the Council for Disability Awareness, an independent nonprofit group, provides these six startling facts.

1. More than one in four of today’s 20-year-olds will become disabled before they retire. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

2. Some 8.5 million disabled U.S. wage earners were receiving Social Security Disability Insurance (SSDI) benefits at the end of September 2011. (Source: Social Security Administration, Office of Disability and Income Security Programs)

3. Ninety percent of new long-term disability claims are the result of an illness, not an accident, and fewer than 5% of claims are work-related. (Source: 2011 Council for Disability Awareness Long-Term Disability Claims Study)

4. The average long-term disability claim lasts 31.2 months. (Source: 2010 GenRe Disability Fact Book)

5. New applications for Social Security Disability Insurance (SSDI) benefits increased 27% from 2008 to 2010. (Source: Social Security Administration, Office of Disability and Income Security Programs)

6. About 100 million workers lack private disability income insurance. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

If you don’t have DI insurance, either through a policy from your employer or one you’ve bought on your own, you can choose from among a wide array of products whose costs and benefits vary widely. Here are several factors you’ll need to take into account.

  • How a policy defines “disability” is crucial. The best policies pay benefits if you can’t work in your chosen profession, and they don’t consider the nature of an injury.
  • DI insurance policies generally require a waiting period before paying benefits, and a shorter waiting period normally translates into higher premiums.
  • Typically, a policy will state how long and under what circumstances it will pay disability income benefits. It could, for example, provide benefits only until you qualify to receive Social Security retirement benefits.
  • If you opt for a noncancellable policy, the insurer can’t drop you off its rolls if your health declines.

Finally, don’t be seduced by the low costs of a fly-by-night operation. You’ll be better off opting for an experienced company with a good reputation.