February 24, 2018
CAI Insurance Agency

Income Replacement due to Disability

Miscellaneous - IMA1021.jpgDisability Insurance is often overlooked as a component of your family’s financial plan. Most people see a need and purchase some form of Life Insurance to protect their family in the event of the loss of a wage earner early in life. While Life Insurance is an important component of any family’s plan, Disability Insurance should not be overlooked. Each of us is more likely to be suffer a period of disability longer than 60 days before age 65 than we are to suffer an early death. You don’t have to take our word for it. See the facts at www.disabilityhappens.org.

The U.S. Census Bureau estimates that workers have a 20% chance of becoming disabled at some point during their working lifetime. The most common causes of Long Term (greater than 90 days) Disability include cancer, back or spinal injuries, complications from pregnancy, accidents, and heart disease. The average Long Term Disability lasts 2.5 years. Most employees (estimates are as high as 71%) live from paycheck to paycheck, with little or no savings to fall back on in the event they can no longer earn the paychecks on which they depend. Despite these sobering statistics, the Social Security Administration estimates that 70% or workers have not invested in a personal Long Term Disability policy.

Workers Compensation and Social Security are not typically viable alternatives: only an estimated 1 in 10 disabling injuries are work related. The average Social Security Disability Insurance benefit is slightly more than $1000 a month - plus fewer than 50% of those that apply for these benefits are approved.
What happens if you’re unable to work? How will your family continue to pay the bills, particularly if your spouse’s ability to earn is reduced while they help you recover? A Disability Insurance Policy can guarantee that you’ll continue to receive up to 80% of your income if you suffer a disabling illness or accident.

Disability Policies typically cost approximately 1-2% of your annual income, depending on the options you choose to purchase. That makes these policies more expensive than Term Life Policies, but whn you consider that you are guaranteeing up to 80% of your earning potential, can you afford not to have a policy?

Disability Policies can be offered through your employer, or purchased individually. Employer sponsored plans typically provide a maximum benefit of 66% of your salary if you become disabled. The good news about group plans is that the policies are usually “Guaranteed Issue” – meaning that you can buy the coverage regardless of your current health. Group plans also typically offer discounted premiums thanks to the buying power of the group. The not so good news is that the benefits received are usually taxable as income, leaving you with somewhere in the neighborhood of half of your salary coming in while you recover.

Individually purchased policies can guarantee up to 80% of your verifiable income. The good news is that the benefits you receive from your individual policy are usually not taxed as income. An Individual Policy follows you exclusively and is not abandoned if you change employers. They also come with a broader array of options for you to customize your coverage – and control the cost. Indiviudal Policies are medically underwritten – so you’ll have to undergo a qualifying exam in order to purchase a policy.

If your employer offers a Group Plan – ENROLL! Our recommendation would be to supplement the Group Benefit with an Individual Policy. You’ll end up with nearly the same benefit as if you purchase an Individual Policy for the whole amount, at a very attractive cost.