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BUSINESS BASICS CHANNELS 
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Do you need Disability Insurance? Who doesn’t? At the age of 25, your chances of having at least one long term disability that will put you out of action for three months or more before you reach the age of 65 is 44%. Those are pretty high odds. 35? A 41% chance of long term disability! It doesn’t go away as you get older, either. One in seven people will be disabled for at least 5 years before reaching age 65. Although we often insure against death, disability is twice as likely to happen to people between the ages of 25 and 50. Unless you are prepared for it to happen, financial stress can be added to the pain of your disability. So, you say, what about workers’ compensation and Social Security? Aren’t you covered by that? Unfortunately, Social Security can be difficult to qualify for because you must be unable to work at any job. Period. Even if you do qualify for Social Security disability, it will be at least six months before you can begin to collect it. Workers’ compensation will only cover injuries and illnesses that occur on the job and then only if you have coverage. As a practical matter, though, not everyone can afford disability insurance. Some insurance agents won’t even recommend it unless the insured is making at least $40,000 per year. Instead, they suggest that you have 6 months worth of replacement income set aside in a bank or money market account in case of trouble, then rely on Social Security to cover longer problems. Of course, not everyone can do that. Not even the insurance agent who’s recommending it. What is disability income insurance? It’s an insurance policy for which you pay regularly that will pay you if you are not able to work or run your business. It will not replace all of your missing income. The insurance companies are concerned that if they pay you to stay home, you will. As a result, disability income coverage usually won’t pay more than 70% of what you’re currently making. Finding the right policy for you starts with what the policy defines as “disabled.” The best, but most expensive, policy is one that would pay you if you can’t continue doing what you currently do. If you own a construction company and are no longer able to work in the field but could do a desk job, the broadest coverage would probably pay you. Some policies will pay benefits if the individual cannot work at a job “consistent with one’s education, training and experience.” There is also replacement income, which pays if you can continue work in the same field but only with reduced earnings. The least protective policies would only cover you if you cannot work at all. That could mean a big hit financially, especially if you’re a $250 per hour attorney now working as a greeter at Wal-Mart. How much should you buy? Look at your day-to-day living needs and how much you’ve got saved. What do you need to pay the bills? How much else do you need? You’re going to have to make it up out of your savings plus disability and any other income that you can count on. If 70% coverage will still leave you short, it makes sense to look at all of your personal and business money matters carefully. What kinds of features should you consider when shopping for disability coverage? Let’s start with inflation. If costs go up and you have a long term disability, you could lose ground every year. Look at a policy that offers cost of living adjustments that go up with the Consumer Price Index. Another option is to find a policy that goes up by a certain amount per year, say 5% a year for 5 years. An important feature when purchasing an insurance policy can be guaranteed insurability. Sure, you’re fine now. But what happens when you get a few years older and put on a couple of pounds? With guaranteed insurability, you can buy more insurance as your need goes up without having to prove that you’re still in good health. How long does your disability policy pay benefits? You can get a policy that will cover short term disability or one that covers a longer term. Naturally, the longer that the insurance company will have to pay you benefits if they have to pay claims, the higher the premiums that they will charge you. You can save money on premiums by extending the waiting period for your policy to pay you. It’s less expensive if you can wait ninety days before getting your first payment. For short term insurance, payment doesn’t usually start until at least 30 days after the disability. Long term insurance can take up to six months to begin payments. Now let’s look at disability as an employee benefit for your employees. It can be key to retaining employees. In addition to a disability plan that covers all qualified employees, you may want to offer a disability wage continuation plan to key employees. In this case, the employee is covered by an individual policy that improves your basic plan or just provides coverage for certain employees. Usually, the employee applies for and owns the individual plan and your company pays part or all of the premium to them. Your contributions to a wage continuation plan can be excluded from the employee’s income and part or all of your payments may be tax deductible to your company as reasonable compensation. As a business owner, you may want to consider two additional disability coverages. One is for business overhead expense. If you are disabled, it can pay for ongoing expenses. These can include paying employees, insurance, leases, professional dues, taxes, worker’s compensation, utilities, rent, telephone and other costs of keeping your office open while you are disabled. In the case of multiple ownership of a business, you may have a buy-sell agreement that you might want to implement if an owner becomes disabled and will no longer be able to do their work. A disability buyout policy can be purchased that would pay for the buyout. Details, Details Pay attention to your policy when you buy it. Make certain that you understand the definition of disability in the contract and what it means to your coverage. How long will it be between a disability and the first payout? Check your elimination period and trigger date to find out how long you’ll have to wait if a disability does occur. How long will payments continue? Under what circumstances does an insured lose disability payments? What happens if the insured returns to work and the disability is re-triggered? Can an employee, or you yourself, convert it to an individual policy if the business changes its insurance coverage plans? Are there any disabilities that the policy doesn’t cover, like carpal tunnel syndrome? Time To Buy? Like anything else, it pays to compare. We suggest talking with several insurance agents, including at least one independent agent who can compare products for you. You can save a substantial amount of money by shopping around. Insurance experts recommend talking with two or three insurance agents, including independent insurance agents, before purchasing disability insurance. Pay attention to the ratings of each company and select one that is rated A or better. Check them out at A.M. Best which you can find online at http://www.ambest.com/. -Cynthia Nemeth-Johannes |
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