Imagine that you own a special machine that you keep in your basement. The device is able to print money. How would you treat it? You would keep it well-oiled, perhaps cover it so it doesn’t get dusty. You would protect it and certainly would INSURE it!
You call the insurance company to get a quote for your “cash machine” insurance and they say it costs between 2-4% of the amount of money it prints out per year. That wouldn’t be so bad right?
Think of yourself as the cash machine and the cost to replace a portion of your annual income is that 2-4% insurance premium.
The 47 million Americans with no private health insurance was a major catalyst for the approval of the ACA (Obama Care affordable care act). What about the roughly 100 million working Americans that have no private disability income insurance?
Just about every working American needs his or her income to survive. Because wage earners almost always depend on a continuing income stream, protecting their income is a vital step towards financial security.
Limra (life insurance marketing & research association) says that 71% of Americans say they would find it difficult to meet their current financial obligations if their paycheck were delayed for one week. Yet very few people have individual disability insurance.
The purpose of disability income insurance is to replace the income if one is unable to work. There are two main types of disability policies, group and individual. Group is usually offered by an employer at a nominal fee. Individual is usually purchased from an agent somewhat similar to life insurance. Suffice it to say the chances are anywhere from two to seven times greater (depending on age) of being disabled than dying prematurely.
What are the odds it can happen to you? The odds change based on a few factors (age, type of work, smoker etc). To find out your own odds go to www.whatsmypdq.org to ascertain your own personal disability quotient.
The two biggest mistakes most brokers make is to sell based on price and to suggest that clients use the annual premiums paid to take a small tax deduction. The saying “you get what you pay for” is most appropriate when evaluating disability policies. The “definition” of disability is the most important factor in a policy. You want what is termed “own occupation” as the definition. Group policies rarely include that.
The easiest way to explain this is with an example. If a surgeon gets his or her right hand mangled in an accident and they have “own occupation” as their disability definition, they can go on claim and return to work supervising others. The other definition would be something akin to “they can’t work in any area of their chosen field”. In that scenario that surgeon would not be on claim and has to take a big pay cut.
The second mistake is to get greedy and take a small tax deduction on the premiums paid. If disability policies are paid with pre-tax money than the benefits are 100% taxable. If premiums are paid with after-tax money then all benefits are tax free.
One final point is that many disability policies start to reduce their income benefits at age 55 or 60. This is an age where it’s important to meet with your broker to see if it makes sense to reduce or cancel your disability insurance and re-position those premiums for long term care insurance.
I’m always interested in reader opinions or suggestions for future topics and can be reached at robcintel@aol.com.
Call Robert at 917-359-3985 
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