Darren Gerstenblatt, Partner
October 11th, 2017 | 3:35 PM
A long-term disability can be one of the most devastating threats to a family’s financial security. An illness or injury can start a downward spiral that may be difficult to recover from. Yet most of the young people we meet with, and many older individuals as well, don’t understand the risks of being disabled, haven’t thought about the implications and don’t know there are ways to help protect against the effects of long term disability.
1. MOST DISABILITIES OCCUR BECAUSE OF INJURIES RESULTING FROM ACCIDENTS.
When asking a client what they know about disabilities and/or disability insurance? About 50% of the answers from people under 40 are something similar to, “That would cover me if I got in a car accident or got hit by a bus, right?” Yes, it would. The primary cause of disability is chronic disease —musculoskeletal problems cancer and mental disorders are leading diagnoses — rather than workrelated mishaps or non-workplace accidents.1
2. “I AM IN GOOD HEALTH, SO NOTHING WILL HAPPEN TO ME.”
Obviously cancer, strokes, neurological disorders and other illnesses and accidents don’t dodge people who take good care of themselves.
3. “I AM TOO YOUNG TO WORRY ABOUT DISABILITY INCOME INSURANCE.”
Just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67.2 Accidents and illnesses affect people of all ages. Disability income insurance underwriting is extremely tough and many people are not able to get it when they want it. Premiums are usually less expensive when you are young and healthy and many contracts come with premiums which are guaranteed to never go up.
4. MOST LONG TERM DISABILITIES ARE PERMANENT.
While many people think of paralysis or other catastrophic ailments when thinking about disabilities, most disabilities are temporary. You may be completely out of work for a period of time, but modern medicine has enabled more and more people to return to work on a part- or full-time basis. If you are not earning the income you were earning prior to the disability, many disability income insurance contracts will pay you a portion of your benefit for an extended period (possibly as long as the full benefit period). This may be available via a rider at an additional cost.
5. “I COULD DO MY JOB FROM MY HOSPITAL BED.“
Did you ever have the flu? Any chance you were going to work? Did you feel like doing a lot of work from home? Now imagine having a serious illness. Wouldn’t you want to put all of your energy into getting better, and not have to worry about feeding your family or paying the mortgage?
6. “I AM COVERED THROUGH MY GROUP DISABILITY INCOME INSURANCE POLICY OFFERED THROUGH MY COMPANY.”
Even if you do have coverage, it may not adequately protect your income. Most group disability income insurance contracts cover a portion of your salary — typically around 60%. Many group policies only cover base salary and the benefits are taxable (if the employers pay for the coverage). Furthermore, group contracts don’t come with inflation protection and are rarely portable. For those who do have group coverage, it often makes sense to max this out and then buy individual coverage to supplement the gaps.
7. “MY SPOUSE WORKS OR COULD GO BACK TO WORK IF I COULDN’T.”
If you were disabled, do you think you would want your spouse to go back to work, or might he or she want to help care for you? Our experience shows that during times of serious disability, both spouses often end up living off the disabled one’s insurance benefit (even if the other spouse was working before the disability).
8. “I SHOULD PROTECT ENOUGH TO COVER MY EXPENSES.”
Disability insurance only protects a portion of your income, not all of your assets. Most other assets people insure for 100% of their value, such as cars and homes. Why should your income be any less protected? Covering only current costs doesn’t account for potentially higher expenses while disabled (paying your own health insurance; paying medical bills not covered by health insurance). It also doesn’t account for inflation or a natural increase in expenses that typically occurs as children get older. Lastly, without contributions to a retirement plan you may not have enough money built up when the benefit period ends (typically 65 years old).
9. “I HAVE SAVINGS TO COVER ME IF I COULDN’T WORK.”
How long would the savings last if you couldn’t earn an income? Most clients wouldn’t starve if they were disabled for a few years, but the impact of digging into savings and investments would have a huge impact on the number of years they were planning to work or the amount they had accumulated at retirement. For example, if a 40 yearold spends $300,000 of their savings while disabled, and that money would have otherwise earned an 8% return, that’s over $2M of lost wealth at 65 years old. At age 85, that sum would have been almost $10M.
10. “THE INSURANCE COMPANIES WON’T PAY ME ANYWAY.”
Most disabilities are more clear-cut than people think. Being with a strong carrier on a good contract is important. And you’ll want to check into the claims-paying history and ability of the companies offering these policies when making a decision.
The ability to earn an income is one of your most valuable assets. Everything in your life rests on your ability to earn an income — your home, cars, lifestyle, the education of your children, savings and retirement. If this ability is suddenly taken away by a disabling sickness or injury, the potential loss could be overwhelming. Please contact your Lenox advisor before you make a decision. He or she can help you better understand the options available to you and choose the one most likely to help you achieve your overall financial objectives.
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Insurance offered through Massachusetts Mutual Life Insurance Company and other fine companies. 1The 2014 CDA Long-Term Claims Review. 2Social Security Fact Sheet, 2015. 3Bureau of Labor Statistics, Weekly Earning of Wage and Salary Workers, Fourth Quarter 2016. CRN201905-212373 Lenox Advisors. Integrating financial security into financial success. Learn more at www.lenoxadvisors.com