Disability Insurance, Simplified

Disability Insurance is often overlooked by many people, including other Financial Advisors. Some think it is too complex to understand, too difficult to collect on a claim, or too hard to be approved for. There were times when Advisors had to go through a 17 page application form, and then cross their fingers hoping that the client would be approved. Consumers didn’t know what they bought at purchase time, and sometimes had challenges at claim time. Well, that was then.

Today, there are programs that are Guaranteed to Issue. What does that mean? Well, if you are actively working, and not currently hurt or disabled, then you qualify. Disability Insurance is a little different than Life Insurance. It is a living benefit. Most people, if they had to, could quickly figure out their outstanding mortgage, any other consumer debt, and make a decision as to how many years of income would be required for their spouse or family to readjust, and come up with a number. In essence, this number is how much life insurance they would purchase. Disability insurance is the opposite. Most people have an idea at what age they would like to retire, however, they may need to work much longer. Say for example, for round numbers sake, you are earning $50,000 per year. If you were in a car accident and became permanently disabled, where would the 30+ years of income come from? Quick mathematics says that is almost $2 million of income that would be required!

There are a few important things you should consider before purchasing such a plan. First, if you were hurt, how long would you be paid? Many plans will cover you to age 65. However, if something serious happened, the money could run out in 2 to 5 years. Why, because you only had a 2 to 5 year benefit payment period. There are other plans that will pay until age 65 or even age 70.

Second, how long will you have to wait before you are paid? Most plans have some type of waiting period. So, you may have to be off work for a month or longer without any income. Good news, there are plans that pay from the first day of an injury.

What if you get sick or have a heart attack?

Disability plans often have an illness component. Some disability plans insist you be covered for both injury and illness. Others allow you to take the injury only portion, and illness can be added as an option. Unlike Critical Illness Insurance which only pays a Lump Sum, Disability Insurance pays you an ongoing monthly income for as long as you are unable to work, but only for the benefit period which you originally chose.

When putting together a plan for yourself and family there are a few different ways to save money.

1) Choose how much income you really need to meet your living requirements. A $2000 a month benefit will be much less expensive than a $4000 a month benefit. How much do you actually need to pay your mortgage, buy groceries, electrical, cable & telephone bills, and maybe your car payment?
2) By choosing a plan that has a longer waiting period, your cost will be less (expensive) than a plan which pays from the first day of an injury.
3) Choose your riders carefully. Most plans start off fairly basic. Kind of like buying a new car. There is the base model, the mid range, and the top of the line model. Same with Disability Insurance. There is a base income model. Then you can add features, such as Accidental Death coverage, Cost of Living Adjustment, Return of Premium, Accidental fracture…the list can go on.

I hope this information has been helpful.

Jordan Kovats, B.Sc.
Co Founder, The Benefit Guys