Question:
Last week you had a guest discussing disability insurance. I will be 66 in a few months, have Medicare and a supplement and will apply for Social Security at 66. I have three disability policies for over 25 years and wanted to ask her if she recommends extending these or any disability beyond age 65. I plan on working, self employed, until 70. I would appreciate her feedback.
Answer:
Most disability policies that have been in place for more than 10 years have contractual language paying benefits to age 65. Be sure to check the policy, or with the carrier, to see if there is an amendment that specifically states that the policy will pay benefits beyond age 65. Further, be sure to understand what that language says. Some policies will only pay benefits after age 65 for two years, and some may pay to age 70. It is worth knowing the details to determine if it is worth paying the premium.
Next, we suggest you review aggregate policy benefits and premium against current income. Evaluate the current size of the maximum disability benefits against your current and/or projected income that you anticipate. If you do not see a decrease in income and you want to maintain your policies, your policies should payout according to the benefits, if you meet the criteria of disability per the policy’s definition. If you believe your income will reduce, your benefit may actual become reduced as well. Most insurers will only want to insure you for approximately 60%-70% of your income so as not to “incent” you to become disabled. Your income is based on previous year’s tax returns.
Finally, we suggest you evaluate the premium for disability versus the premium for long term care. It is important to know that disability coverage is very different than long term care coverage. Disability insurance will pay to the extent that your contract says your benefits pay beyond 65 and you are actively earning income at time of claim. Long term care benefits will cover cost of “in home and facility care” regardless of if you actively prove you have income or not.
Given that you have had your policies for a number of years, you likely have a relatively small premium because premiums are typically established at the time of purchase and can increase if you have specific riders that were designed to increase benefits as hopefully your income has increased. Long term care premiums will more likely be more expensive, but should provide you better “asset protection” than just protecting your income at this stage of a working life. Additionally, there are tax incentives available to business owners which depend on the kind of corporation structure you have. It may be more beneficial for you to have your business pay your long term care premium.
At Henssler Financial we believe you should Live Ready, which includes having the appropriate insurance policies in place to protect your wealth and your family. If you have questions regarding your insurance needs, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at 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.
