Disability insurance is a product that is designed to provide 45% to 60% of your gross income should sickness, injury or illness prevent you from working and earning income. Many professionals are surprised to learn that disability insurance is more important than life insurance. The American Council of Life Insurers estimates that one third of Americans between the ages 35 and 65 will become disabled for a period greater than 60 days.
There are two main types of disability policies, short-term and long-term. Let’s consider how long-term disability insurance can benefit you and your business needs:
If you have received extensive education and training, it is important to obtain a disability policy that will deem you totally disabled if you are not able to perform the material and substantial duties of your profession. This type of policy is considered an “own occupation” policy. The benefit to an own occupation policy is you are not penalized if you decide to continue working in an occupation other than your current profession. While these policies can be substantially more expensive than group policies, we believe that the cost is worth this important added benefit.
In addition, you should get a policy that is non-cancelable and guaranteed renewable. This means that you have locked in your rates and benefits, and the company cannot make changes to the policy unless you request the changes. These policies are typically the most expensive, so if you are starting your career, cost could be an issue. In that case, you should look to obtain a guaranteed renewable policy. While these policies are less desirable because the insurance company can raise the premiums for different reasons, they cannot deny you the insurance.
Inflation riders are also an important feature for your policy. This means if you file a disability claim, your monthly payment will increase as the cost of living increases. Today a policy may be worth $3,000, but it will likely be more 10 years from now. Another important rider is a future purchase option. This option allows you to buy more coverage as your salary rises or as your business expands. This is advantageous for younger professionals or business owners.
Long-term disability insurance premiums will typically cost between 1% to 3% of annual income. Prices vary based on age, gender, health history and occupation. The elimination period will also affect the cost of the policy. The elimination period is the length of time between the onset of a disability and when payments to you begin. You can choose an elimination period as short as 30 days, but this will increase the cost of the policy. Other common elimination periods are typically 60 days, 90 days or six months. Even longer elimination periods are available, such as 365 days or 720 days. The longer the elimination period the less your premiums will be.
You will also have to choose a benefit period for your policy. This is the length of time the insurance company will pay benefits. Insurance companies allow you to choose benefit terms lasting two years, five years, to age 65 or for the rest of your life. The longer the benefit period, the more expensive your coverage.
Protecting your ability to earn income is imperative to both your personal financial plan and business plan. At Henssler Financial, we recommend disability insurance play a major role in protecting your ability to earn income, as statistics show an individual is more likely to become disabled in their earning years than to meet their demise. For more information on disability insurance, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
With the 2005 Terri Schiavo case, many individuals, regardless of age, became aware of the importance of communicating their healthcare wishes. Her case, which ensued after Schiavo suffered heart failure and subsequent brain damage at the age of 26, involved a seven-year battle between her husband and her parents over a healthcare decision. She had no written instruction—whether she would have wanted to live by being sustained through feeding tubes and life support. As Schiavo did not have a living Will, the courts were required to decide her fate, leaving speculation as to what she would have truly wanted.
Living Will
A living Will is also known as a “health care declaration.” This is a document in which you can express specific wishes with regard to what medical care you wish to receive in the event you are incapacitated or too ill to make decisions on your own.
This document allows you to make your wishes known in advance, regarding specific treatment methods, such as resuscitation, surgery, use of respirators, administration of drugs, food, water and pain relief. This document does not allow you to select someone to act on your behalf.
Healthcare Power of Attorney
To ensure that your wishes are met if you are unable to communicate, you can name a healthcare agent in addition to or as part of your living Will. A Healthcare Power of Attorney enables you to provide authority to a healthcare agent to make decisions regarding your healthcare needs in the event that you cannot. While we strongly suggest that you name a healthcare agent, it is not a requirement.
In some states, this person is called a “healthcare proxy” or “attorney in fact,” even though the person does not need to be an attorney. You are able to give as little or as much control to this person as you wish. For example, you can give this person the authority to make decisions based solely on the wishes stated in your living Will and/or make decisions as he or she deems necessary should unforeseen instances arise. While this responsibility usually ends at the time of your death, it is also possible to give your agent the authority to oversee issues relating to organ donations and body disposition after death.
In some states, the living Will and healthcare power of attorney can be combined into a single document—often called an “advance directive.” In most cases, these documents become effective as soon as your doctor, or other healthcare official, determines that you do not have the ability to understand the healthcare options available to you, and/or you are unable to physically communicate your wishes regarding your care. If there is ever doubt about the level of “incapacity,” then your doctor, in conjunction with your agent or close relatives, will decide the best time for the documents to become effective.
Choosing a Healthcare Agent
You should take into consideration the following factors when choosing an agent:
- Do you trust the person without a doubt?
- Is the person someone you know will assert your wishes, if conflict arises involving family members or your doctor?
- Where does the person reside? This is especially important in a case when you have a long illness, and the agent needs to stay close to you for a period of time to oversee your care.
- Will the person also oversee your finances in the event of your incapacity? If you have separate agents, disagreements could cause interference with medical decisions, especially when payment is needed to cover medical expenses.
It is also important, but not required, to select an alternate agent in the event that your first choice is not able to assume the responsibility. It is possible to have more than one agent.
You must be at least 18 years old to create a living Will or healthcare power of attorney. You must be of sound mind and be able to understand what the documents are and how they work. As with most legal documents, you must sign these documents and have them witnessed and notarized.
It is important to state your specific healthcare wishes in a living Will. Your doctor or medical institution will be required to follow these wishes. At the very least, you should communicate your wishes to those close to you—your family members and close friends. For more information on your options, talk to your estate-planning lawyer or contact
