Inside Skinny on a Forgotten Income Protection Strategy

By Lee Bellinger / November 12, 2013

Pocketing a monthly income,

even if you’re too sick or hurt to work

If you   become disabled...
If you are among those fortunate people who have good jobs, especially in the most productive years of your life, then you may want to consider this extra layer of financial protection. I’m not here to sell you anything… I just want to educate you.
Because, as a gainfully employed individual, it makes sense to minimize the danger of losing your ability to earn an income. Especially when government meddling, central bank policy, or international interest-rate wars are not the cause.
Whether you or someone you care about is in the wealth-building stage of life, where working and producing an income is a vital function, you’ll want to read this email about the little-known and little-discussed financial product that secures your salary.
Disability Insurance: Here’s What You Need to Know
Suffering from a disability causes severe financial hardship. It’s also more common than you probably believe.
Entrepreneurs and hard-working people often forget they are their OWN gold-laying-goose. Your wealth and virtually everything you own is a result of your ability to work industriously. If you lost your investments or your business, you could pick yourself up and build it again. But if you become disabled and can’t work, even if you want to, your and your family’s entire life could be turned upside down.
  • A study in The American Journal of Medicine shows that medical disabilities contributed to 62% of all personal bankruptcies in 2007, which is a 49.6% increase over results from a similar study in 2001.
  • The study Get Sick, Get Out: The Medical Causes of Home Mortgage Foreclosures suggests that before the real estate bubble collapse, medical problems contributed to half of all home foreclosure filings in 2006; almost as devastating as the bubble collapse itself.
  • In the latest records published by the U.S. Census Bureau, about 12% of the total population is disabled and more than 50% is in their working years (age 64 and younger).
Suffering a Long-Term Disability Is Not Uncommon
and an Accident ISN’T Generally the Cause
The majority of income earners believe they have less than a 2 percent chance of suffering a long-term disability. According to DisabilityCanHappen.org, the odds are closer to 30 percent!
Car accidents, ski accidents, and other accidents don’t tend to cause long-lasting disabilities. Studies suggest illness causes the vast majority of disabilities. A 2010 Long-Term Disability Claims Review revealed accidents caused just 10% of disabilities. The other 90% are caused by a slew of illnesses such as:
If you become disabled...
  • Musculoskeletal/connective tissue disorders, 27.5%
  • Cancer, 14.6%
  • Cardiovascular/circulatory disorders, 9.1%
  • Mental disorders, 9.1%
  • Nervous system related illnesses, 6.9%
  • And more…
What’s worse, as opposed to broken bones caused by an accident, illnesses like the ones mentioned above can last weeks, months, years, and even a lifetime.
The Government Won’t Be There to Help You
According to the Council for Disability Awareness, only 5% of U.S. workers (8.3 million) received Social Security Disability (SSDI) benefits by the end of March 2011.
  • 65% of initial SSDI claim applications were denied in 2009;
  • The average monthly benefit paid by Social Security Disability Insurance (SSDI) in June of 2010 was just $1,065 a month;
  • 97% of SSDI recipients received less than $2,000 per month;
  • Less than 5% of disabling accidents and illnesses are work related, which means 95% of disabilities is not covered by Workers’ Compensation.
The Free Market Has Developed a Solution
Many insurance companies are willing to protect your ability to work and earn with an Income Disability Insurance policy. Simply stated, if you become disabled and not able to work the insurance company pays your salary.
You’ll need to speak with your agent to get specifics, but here are a few basics to help familiarize you to this sort of financial insurance product.
  • Most likely you won’t be able to get coverage for 100% of your income. Insurance companies want to encourage you to get healthy and return to work.
  • However, if you set up your disability insurance plan correctly, your monthly benefit could be paid tax-free, increasing your overall spending power.
  • Try to find a policy that will cover you under an “own occupation” definition. This is the most generous definition of disability. For example, if you’re a dentist and suffer back pain that prevents you from working as a dentist, you are considered disabled under this definition; even if you secure a job as a dental professor or any other job you’re capable of performing.
  • Learn how the premium is calculated. The insurance company will consider your age, sex, health, as well as your occupation. All things being equal, a riskier occupation would have a higher premium than a less risky occupation.
  • You can make decisions which affect your premium payments:

    • Waiting (or elimination) period – how long you’re willing to wait after becoming disabled before the insurance kicks in. Waiting longer lowers the premium.
    • Benefit period – how long you wish the insurance company to cover your monthly disability payments. Coverage until you turn 65 years old will cost more than coverage for only two years.
    • Benefit amount – How much of your income you want covered by the insurance company, up to their max.
    • Amortization – Most disability policies have a fixed payment over the full term of the policy. But, if you believe you may drop the policy down the road (because you expect to be able to self-insure with your own savings, for example), then consider a payment schedule where premiums begin much lower and rise over time.
  • There are optional riders to consider adding to an income disability insurance plan. When you speak with your agent ask about the different options to protect your monthly benefit from inflation destruction. These options allow you to protect your growing income regardless of your health or increase your monthly benefit amount each year while receiving disability.
  • The cheapest way to purchase disability is to get it while you’re young and healthy.
A Surprising Bonus Tip If You Own a Permanent Life Insurance Policy
If your life insurance plan builds cash value, you could add an optional Waiver of Premium. In a nutshell, if you become disabled, the insurance company pays your premium payments. All the while, your cash value continues to accumulate and you have total access to the growing funds through a withdrawal or policy loan. And if it’s set up correctly, these funds could be available to you tax-free.
And If You Own a Business, Have Partners, or Key Employees…
Many companies are aware of the importance to cover their key employees, such as executives and business owners, with a life insurance policy. But often, income disability insurance is overlooked.
For someone in their working years, suffering a disability is much more common than experiencing a premature death. Yet, the result to the company is the same – the loss of that important and productive individual. Disability insurance can help cover the financial loss and keep the company stable until a replacement is found. In the case of business partners, disability (as well as life insurance) can be used to fund a buyout – making these products important estate planning tools as well.
While you’re building your wealth and protecting your spending power through hard asset investments, don’t let your financial rug get pulled from under you and lose your ability to work and earn. Speak to your insurance agent at your next review and consider disability insurance to help protect your financial life.