Protection Planning with Disability Insurance

by Jim Jordan

One of the most important aspects of financial planning is protection planning.  While very few of us actually plan for it, a large number of us will experience a significant disability during our careers. According to the Council for Disability Awareness, a typical 35 year old woman has a 24% chance of becoming disabled for 3 months or longer during her working career, and a 38% chance that this disability would last for 5 years or longer. Without a plan, something like this can throw a wrench into any family’s finances.   The most common– and beneficial– protection policies are health, auto, and homeowner’s coverage.  There is another, often overlooked protection is insurance for your earning potential in the case of an illness or injury.  You can set up this protection planning by purchasing a Disability Income Insurance Policy.

Short Term and Long Term Disability policies are frequently offered by large employers as part of a benefit package.  Small employers are beginning to add disability plans, as an alternative to more high-cost benefits in group health insurance plans. If your employer doesn’t offer disability insurance, you may purchase your own policy as an an individual.  Don’t overlook these low cost offerings.

Short term disability insurance is typically quite helpful should you have an injury or illness causing you to miss work for several weeks or months. It is also commonly used to cover maternity leave.  Depending on the policy you choose, the benefit will pay approximately 60% of wages up to 6 months per illness or injury, after an elimination period, typically 7-14 days.

Depending on your choice of policy, a long term disability will have a longer elimination (waiting) period, and will have a longer period of claims payment.   Long Term Disability will have longer elimination periods; typically 60, 90, or 180 days but provide a much longer benefit period.  Claims could be paid potentially until retirement age.

Here is a simple illustration of how beneficial Long Term disability insurance can be:

Consider an employee, 40 years old, earning $4000 per month. If he were to experience a life-changing disability (for example, an auto accident causing loss of an arm or leg), a long term disability policy could pay out over $750,000 in lost wages due to his injury.  In other words the benefit would be $2400 per month up to 27 years.

Workplace Short Term and Long Term disability packages are typically guaranteed issue and will cover pre-existing conditions after 12 months and have a premium less than $30 per month.  In contrast, individually owned Disability policies are underwritten, meaning pre-existing conditions wold be excluded from the policy, or could disqualify the applicant altogether.

Own-Occupation vs Any-Occupation:

When selecting the best disability policy for your situation, one important consideration is knowing the difference between Own-Occupation or Any-Occupation benefits.  An ‘own-occupation’ policy is stronger coverage, as the benefit would pay if you couldn’t continue to work in your current career.  The ‘any-occupation’ policy would only pay if you were unable to work at all. For example, if you are a school teacher, and you suffer an illness or injury, you may no longer be able to work as a teacher. If you decided to work light hours as a hospital greeter, you would be eligible to receive claim benefits from an own-occupation coverage.  Your any-occupation policy would not pay, as it only pays if the claimant cannot perform any job.

Take the time to fully review your work place benefits and seriously consider enrolling during the next enrollment period.  The experienced agents at Thomas & Associates will help you review your existing coverage as well as offer a full portfolio of protection benefits to your family or business.