Your Money

Be proactive in acquiring disability income insurance

Certified financial plannerJanuary 13, 2013 

Everyone hopes for a long, healthy life. Unfortunately, many underestimate the likelihood of an event compromising their health or ability to work. Instead of simply hoping that you never become disabled, proactively protect your family from this financial risk through disability income insurance.

There is a common misconception that disabled persons automatically qualify for Social Security disability benefits. Instead, qualifying for social security disability benefits is both a stringent and lengthy process. Private disability insurance, however, replaces a portion, generally up to 60 percent, of your gross earnings in the event you become injured or disabled. Also, in many cases the benefit is considered tax-free income.

Therefore, when deciding which private disability insurance policy to purchase, consumers should take the following into consideration:

Policy definitions: Insurance companies have options for the definition of total disability. For that reason, it is imperative to understand your policy’s definition. “Own occupation” policies consider the insured totally disabled if he cannot perform all of the functions required in his “own occupation.”

Conversely, “any occupation” policies restrict the definition by rendering the insured totally disabled if he cannot perform “any occupation” that he has the training, education, or experience to perform.

For example, Dr. Smiley owns a dental practice and is now stricken with Parkinson’s disease. Consequently, he cannot serve patients any longer. Under these conditions, he would likely satisfy the definition under an “own occupation” policy. However, if his policy was an “any occupation” policy, then the outcome may be different. Based on Dr. Smiley’s education, training, and experience, he can reasonably work as a dental instructor at a medical college. Therefore, while he may satisfy the definition of total disability for an “own occupation” policy, he would not satisfy it for an “any occupation” policy.

Riders: In layman’s terms, riders are optional insurance policy benefits that are available for an additional cost. Consider them the bells and whistles of your insurance policy. While some riders are recommended, not all of them provide a good value for the expense.

Take a young, single person, for example. She may purchase the rider that allows her to increase the benefit without proof of insurability as her life changes and career progresses. Conversely, this same rider is not worth the expense for the worker who is within five years of retirement. That is why it is prudent to discuss your options with a disinterested professional whose compensation is not correlated to the type and size of policy that you purchase before making your final decision.

Premium: In many cases, the premium deters consumers from purchasing any disability protection at all. Instead of disregarding this as an unnecessary expense, utilize strategies to reduce the potential premium.

First, improve your health. Lose weight. Stop smoking. Cancel your skydiving trip. Insurance companies prefer to insure people who live healthy lifestyles and are less likely to file a claim. Now is a great time to commit to your New Year’s resolution of developing healthy habits.

You can also increase the elimination period. The elimination period is the amount of time that you wait before the insurance company pays benefits. By increasing the waiting period from 30 days to 90 or 180 days, you can make the premium more affordable.

Alternatively, decreasing the benefit period produces a similar outcome. While you may prefer for the policy to pay until age 65, if you can only afford a policy with a maximum benefit of two or five years, then that is better than no coverage at all.

In the end, the goal is to own a policy that provides the best protection and value based for your specific needs.

Life is a journey, plan for it.

Ashleigh Brooker, CFP, is the principal of A.J. Brooker Financial Associates in Columbia. Contact her at info@AJBrooker.com or (803) 724-1235.

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