As the old saying goes, “Give a man a fish, you feed him for a day. Teach a man to fish, you feed him for a lifetime.” Contrary to popular belief, your money is not your most valuable asset, but rather, your ability to make money is your most valuable asset. The amount of money you will have at any given time is guaranteed to ebb and flow, but your ability to work and earn money is what provides you with security for the future.
Nearly all of your future plans—supporting your family, sending your kids to school, traveling, and retirement—are all based on the fact that you will be able to work for years to come. But what if this weren’t the case? What would happen if you unexpectedly lost your ability to work due to illness, injury or disease? When an unexpected event occurs, expenses often rise and your income is often significantly reduced, leaving you with a financial burden you are often unable to pay. Not only can this affect your ability to work, but it can also drastically affect your family and future plans.
Disability Insurance is a type of protection for the unexpected. If you lose your greatest asset – your ability to work – this insurance assures you and your family the peace of financial security. It is estimated that before the age of 65, approximately 30% of Americans will suffer from a disability lasting 3 months or longer*. Additionally, over 50% of personal mortgage foreclosures and bankruptcies result from a physical inability to work. These facts considered, it is important to ask yourself if you, without your ability to work, could still maintain your standard of living? Would your mortgage and bills get paid, your family feel secure, and your retirement fund remain untouched?
If you are unsure that your savings and/or spouse’s income could provide this stability, then it is time to consider disability insurance. You protect your house, your car, and your life, but if your income is lost then paying for these assets may not be a possibility without the assistance of disability insurance.
Who benefits from disability insurance?
As of 2013 and the three years prior, the 4 most common reasons for disability insurance claims to be filed were as follows: musculoskeletal system and connective tissue diseases (28.7%), nervous system and sense organ diseases (15.2%), circulatory system diseases (12.4%), and cancer (9.1%). Behind these causes include other diseases, injuries, and unexpected accidents.
Put simply, if you are working for a paycheck or salary, you likely need to protect your income. Unforeseen diseases and injuries can affect anyone and without disability insurance, nearly every asset you own can be put at stake. Here at Fischman Insurance Group, we will work with you to develop the best plan for your specific needs and situation.
Group benefits vs. an individual policy
More often than not, employers will provide their employees with some level of disability insurance, usually in the form of group coverage. This type of coverage can be grouped into two types: short-term disability (STD) and long-term disability (LTD). Short-term disability insurance will commonly replace a large portion of your income, but only for a short period of time, usually several months. On the other hand, long-term disability insurance will cover more or less than half of your base salary, but for a longer period of time.
When employers, especially those of larger companies, provide their workers with group disability insurance, they will sometimes also give you the option to add onto their coverage plan. One advantage of purchasing disability insurance through your employer is that it becomes easier to qualify than if you were to buy it as an individual.
In contrast to group insurance, disability coverage is offered on an individual level. This type of insurance is transferable so that even if you switch jobs, your income will still be protected. Most policies will cover about 40-65% of the salary you earned before your disability developed and when paid with after-tax dollars, benefits of the plan will be received without any taxes deducted.
How much is enough?
The simplest way to determine how much coverage you need is to figure out all of your monthly expenses such as bills, mortgage, retirement savings, student loans, etc. and compare them to other sources of income. Whether you have social security, personal savings or the income of a spouse, it is important to compare these funds with the amount you need to pay each month.
If these sources of income do not add up to or exceed the amount of expenditures, then you should seriously consider protecting your income with disability insurance. It is important to keep in mind that when you become disabled, your job and income are not the only things affected; losing one’s ability to make money can also impact your retirement fund, savings, mortgage, and other assets.
Specializing in disability insurance for professionals
Here at Fischman Insurance, our focus is providing our clients with the right type of insurance to meet their individual needs. When it comes to professionals such as business owners and executives, physicians, consultants, and attorneys, our team works to develop disability plans that best suit each business and the team of employees they are insuring. We understand the intricacies of owning a business or practice and that is why we want to make your insurance policy both simple and effective so that you can focus on what really matters: running your business. On an individual basis, our team works to understand your specific needs and protect your income no matter what comes your way.
Group vs. Individual Disability Insurance
In many businesses, especially large corporations, the owner will provide his or her employees with short- and/or long-term disability insurance as a part of the benefits package. If this is the case, insurance will be offered at no cost to you and without any underwriting, meaning that you do not need to qualify for your coverage. Employer-provided coverage offers group benefits and will typically cover about 60% of your gross income in the case of a disability. Group insurance also has several disadvantages, however, in that the amount covered can be capped and that in the case of a job-change, your insurance will not transfer over to your new career.
Is your group disability insurance enough?
The simplest way to determine how much coverage you need is to figure out all of your monthly expenses such as bills, mortgage, retirement savings, student loans, etc., and compare them to other sources of income (such as social security, personal savings or the income of a spouse). If your other sources of income do not add up to or exceed the amount of expenditures, then you should seriously consider protecting your income with disability insurance.
Individual disability insurance
In the case that your employer does not provide group disability insurance, individual disability insurance, purchased through a qualified and trusted professional, serves as a good alternative for income protection. There are many benefits to individual insurance because it is not tied to your current employer. This means that you have the opportunity to look around at several carriers and plans before purchasing an insurance plan, to transfer your plan in the case of a job change, and to add on to existing plans if your employer does, in fact, provide coverage.
Individual plans allow you to assess your own needs and work with an agent to find a plan that best meets your individual circumstances. Individual disability coverage plans can be purchased to supplement a group plan or to serve as your primary source of income protection. Either way, individual coverage serves to protect your income and your security by cushioning one’s loss and provisioning for one’s needs in the case of an unexpected illness or injury.
Individual Disability Insurance Policy Provisions and Benefits
Provide evidence of good health
In the case of individual coverage plans, it is the insurer’s decision as to whether or not they provide you with a coverage plan. This means that, although the carrier can ask for proof of good health before insuring you, they are as a result able to provide you with better coverage and policy provisions.
Unlike group-coverage plans, individual plans are not tied to one employer. The coverage plan is yours alone and thus, if you change jobs, your plan moves with you and covers you in any career role.
So long as you pay your premiums on time, your carrier cannot change the amount you pay or cancel your coverage. This being said, we at Fischman Insurance recommend locking in a lower premium for your plan by purchasing insurance sooner rather than later.
If you purchase your disability insurance plan with after-tax dollars, you will likely receive your benefits free of income tax deductions.
Protects your insurability
In the case that you do experience an unexpected change in health, you are still able to increase your individual insurance in the future. Regardless of whether this coverage is individual or supplemental to your group plan; you can leave your employer without fearing a loss of group benefits.
Group disability insurance
Providing your employees with group disability coverage is one of the best ways to show them that you value their work and their role in your business. Not only does this coverage attract hardworking employees, but it also helps you to retain your employees by giving them security in their work. These coverage plans can be short-term or long-term and often require no underwriting or proof of insurability. Most group plans will provide employees with a percentage of their salaries (up to a certain maximum/month) and will offer benefits up to age 65.
Short-term group disability insurance (STD)
Short-term group disability insurance provides benefits for about three to six months in the case of a short-term injury or illness. This coverage will provide employees with benefits in the case of a total or partial disability due to illness, injury, or a pregnancy.
Long-term group disability insurance (LTD)
In contrast to short-term coverage, long-term group disability insurance pays a smaller amount of one’s income (50-60% of one’s pre-tax income) but for a longer period of time. This type of insurance plan is usually enacted once a short-term plan has “expired” and the individual still needs income protection due to an extended disability.
Drawbacks to a group disability insurance policy
- If you change jobs, your policy does not go with you—coverage is not transferable
- The amount of benefits received are capped, affecting those with a higher income
- Most group policies will require proof of total disability in order to receive compensation
- Your employer can cancel the benefits at any time based on his discretion
- If your employer is the one paying premiums on the plan, the benefits that you receive can be taxable, reducing the amount of compensation you receive
How do you decide if you need short-term or long-term disability?
In order to decide whether you need short-term or long-term disability insurance, it is important to calculate approximately how long you could last without your income in the case of an injury or illness. This requires you to examine your financial situation, current savings, and other sources of income in order to determine how long you could go without a paycheck and still maintain your current standard of living. Consider, for example, the difference between recovering from a minor car accident, verses battling cancer; if you do not feel as if you could support yourself in either of these situations then you should strongly consider a disability insurance plan. In many cases, long-term coverage will suffice, but the best types of coverage plans are ones that implement short-term and long-term protection.
Professional association insurance
In many professions, members are allowed and encouraged to purchase group-disability insurance for their employees. These types of plans require little to no proof of health and are often based solely on one’s age and income. Similar to group insurance is a type of coverage known as Association insurance. If your company has a smaller budget but you are still looking to provide employees with a baseline level of income protection, this type of insurance is a good place to start. Association insurance has a stricter definition of disability and a more limited range of benefits, but still provides employees with a basic level of income security.
As with other types of plans, Association insurance has several drawbacks to its coverage. Like other employer-provided plans, Association insurance does not transfer if you change jobs and always runs the risk of being dropped by your employer. This considered, we recommend supplementing this plan with an individual plan that provides additional benefits and transfers in the case of a job change. If the unexpected occurs and your income is threatened, having a basic group plan, supplemented with an individual plan, will provide you with the highest level of protection with the lowest level of risk.