Education Center

Education Center

Imagining Life With No Income

Nobody likes to imagine what life would be like if they were to become disabled. For example, someone who suddenly became disabled may have to foreclose on their house or declare bankruptcy because they became unable to pay their expenses.  The loss of income can be devastating financially. That’s why it is important when meeting with your financial planner that you learn about the best policy options for you. Mr. Smith is an excellent example of this. He is 50 years old and is responsible for a wife and 2 kids. He also has a family history of cancer and is taking a medication to treat high cholesterol. He is concerned about paying for his family’s expenses if he was unable to work, and at his current age he sees himself as a higher than normal risk of needing disability benefits either due to an accident or illness. Mr. Smith’s financial planner pointed out that Mr. Smith’s greatest risk is becoming disabled. According to a study by American Health Insurance Plans (AHIP), 1 out of 3 people will miss 90 days of work due to a disability. The financial planner also educated Mr. Smith on the differences in having private disability insurance compared to a typical policy through the workplace, and how difficult it can be for anyone to qualify for government paid disability benefits. At the end of the meeting Mr. Smith learned that disability policy provided by an employer may cover less than 60% of the employee’s income because employers usually take the tax deduction for providing the employee benefit. When this happens the employee’s benefit becomes taxable, and the employee’s after-tax benefit is likely lower than 60% of the employee’s annual income. He also learned that it’s extremely difficult to be approved for social security or government… Read More »

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What is Disability Insurance?

What is Disability Insurance? Disability insurance could be more properly termed “income insurance”. It is coverage that provides a monthly cash benefit when you can’t work because of a covered injury or illness. It should not be confused with “workers compensation” which is required insurance for those injured on the job. If you injure yourself on the job you are not usually eligible for a disability claim as the injury is already covered by workers comp. Receiving disability insurance benefits can help safeguard your way of life in the event your regular paycheck stops because you can’t work. It helps to avoid the problems created when your mortgage payment and other bills would otherwise not be paid because you were not bringing home a paycheck. Most insurers consider older workers over age 65 to be too high a risk and do not offer coverage for that age group. The cost is lower for younger workers because they are considered less injury and illness prone. Disability insurance policies come with a wide array of options such as the following: Automatic Increase Option This option increases the insured’s monthly benefit annually for a specified number of years. The premium also goes up each year because of the additional coverage. Selecting this option helps increase the insured’s benefits along with inflation without having to remember to do it every year. This option would cost the insured a higher premium expense than a plan with static coverage. Benefit Period This identifies the maximum number of months during which the insured is eligible to collect benefits on a disability insurance claim. The benefit period starts after the “elimination period” has been completed. The elimination period is that period after you are sick or injured until you receive payments from your disability coverage. Benefits continue until… Read More »

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