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 [email protected].