Disability Insurance

Ask yourself these questions:

  • What if your last payday was your LAST payday?
  • How long could you and your family survive without your paycheck?

When we think of our assets, our thoughts automatically go to our house, car, belongings and it’s rare when we think of our paycheck. In reality, our most valuable asset is our ability to make money. Without that how can we maintain our other assets?

Do you need Disability insurance? The question really is: who doesn’t? Disability protection is for anyone whose income is important to their financial survival.

Think about this:

  • Nearly 1 out of every 3 workers over age 30 will suffer a disability lasting three months or longer at some time in their working career.*
  • Nearly half of all home foreclosures are caused by an unforeseen disability.**
  • More disabilities are the result of illness rather than accidents.***

*America’s Health Insurance Plans, 2004
**Norton’s Bankruptcy Law Advisor, 2000
***JHA Disability Survey, 2002
****Social Security Administration, 2003

You may think that Social Security disability benefits will kick in at some point and keep enough money coming in to pay for your mortgage, bills, your children’s expenses, etc…but you may be surprised to learn about the Social Security’s definition of disability:

Your disability must interfere with basic work activities. In other words, if you can perform any of your previous duties or that of any other occupation that they deem you are suitable for based on your age, transferable skills and education, then they will NOT consider you disabled.

The impairment must be expected to last at least 12 months or to result in death and the determination must be based on medical evidence. No benefits are paid for short-term or partial disabilities.

In the rare case you are approved for SSA Disability benefits, you will be subject to a 5 month waiting period. Yes, that’s right – no money for 5 months!


Disability Income Insurance

Simply put disability insurance is income protection. The ability to earn an income is a person’s most valuable asset. Disability insurance is designed to pay monetary benefits, usually weekly or monthly, during times when an illness or injury prevents the insured from earning an income. Plans are highly customizable and can pay up to 2/3 of your income should you become disabled and cannot perform the duties of your job. Individual plans can also be coordinated with your employer’s plan to help maximize your monthly benefit.


Business Overhead Expense (BOE):

B.O.E. is designed to cover routine expenses (rent, utilities, advertising…) when an owner becomes disabled. Its purpose is to allow the business to keeps its doors open until the owner returns or is able to sell the business. It pays all expenses (including wages), except for the owner’s compensation, which is generally covered by a separate policy. Premiums are deductible but benefits are taxable.

Key Person Disability

Key Person insurance provides disability benefits payable to the employer to offset losses as a result of a key employee being disabled. For example: the profitability of a company may suffer considerably if its best salesperson is out of commission. Key employee disability insurance makes up for this loss. The employee has no part in the arrangement other than as the insured. The employer’s premium payments are not tax-deductible, but the benefits are tax-free when received.

Disability Buy-Sell

Buy-sell is an agreement to buy out the interest of a partner’s interest in a company. Disability benefits fund the buy-out agreement. In the case where a business owner is disabled and is unable to return to work after a certain time, the disability buy-sell insurance pays a lump-sum to the disabled partner in exchange for the sale of his/her interest in the business. This waiting period should correspond to the benefit period of the B.O.E. policy (which is typically one to two years).

Most financial planners will tell you that Disability insurance is the place to start when evaluating your plan to protect your financial well being and I agree.