How Much Do You Know About Disability Insurance?
Andrew Altfest, CFP®
Most people think, “What are the odds that a disability will keep me from working?” The answer is, it may be more likely than you think.
According to the Social Security Administration, 56 million Americans, or one in five, live with disabilities. Thirty-eight million disabled Americans, or one in 10, live with severe disabilities1. And 86 percent of Supplemental Security Income (SSI) recipients collected these benefits because of disability and blindness2. If you need to live on your salary, it’s crucial to consider the consequences for you and your family if you were not able to work, and to prepare for that dire possibility.
Type of Policy
People most often acquire disability insurance through one of three methods: group coverage through an employer; group coverage through an association or affinity group; or individual coverage through an agent.
Group coverage through your employer or an association can be less expensive, but it comes with limitations including lack of portability if you change jobs or the chance that the insurer could drop you from the plan, even if you are paying scheduled premiums. Also, many group policies may not take into account your commission or bonus, and may have earnings caps for coverage. For a high-earner, these coverage caps could lead to being seriously underinsured. Individual coverage offered through agents can be more expensive, but it offers more generous benefits, definitions and options as well as flexibility in terms of coverage.
What You Need to Consider
Because you don’t know when you might become disabled, the sooner you get coverage, the better. Plus, the younger and healthier you are, the lower your premiums will be. Also, obtaining proper classification of your occupation is important, as different classes can result in varying premiums for the same benefits.
Disability insurance sometimes is considered “paycheck-protection” insurance — a planned replacement for your occupational income. To ensure this, though, pay attention to the most important feature of disability insurance: how your policy defines total disability. For a profession with highly specific job descriptions, this usually means you should get an “own occupation” policy. This type of policy will provide benefits for a disabling condition that prevents you from performing your original skilled occupation but allows you to adapt your work situation. For example, a disabled surgeon might have to give up performing patient operations, but she could become an instructor for medical students.
Another factor you should be aware of in your policy is its components of coverage, including residual disability and inflation riders, or other provisions. Do you have enough coverage on your income? Do you need more coverage from an individual or supplemental plan? Are you covered by the policy when you return to work yet continue to experience an income loss? What if you are able to work but not full time, are you covered? Will the benefit amounts increase as your income or living expenses increase over the years?
Protecting Your Business
If you are a business owner, disability insurance is even more important because you are taking care of yourself as well as the future of your business.
First and foremost, business overhead expenses need to be covered while you are unable to work. Typically, a business-overhead expense rider within the disability insurance policy will provide the business funding to maintain necessary operations for a period of time.
If you have a business partner, you also need to think about the consequences of that person’s being disabled. Is the disabled partner going to continue drawing a salary or share of profits if a replacement must be hired at the same time? Disability buyout insurance creates the capital to acquire the disabled partner’s share, if necessary.
What Altfest Can Do
At Altfest, we have our own insurance review processes, incorporating in-house knowledge and increasingly artificial intelligence (AI) technology. As part of our wealth management services, we can review your existing disability policy and identify potential gaps for your disability plan considering your broader financial plan for you to discuss with your agent. With your consent, we recommend or contact independent insurance agents to determine the most suitable policies for you. You’re under no obligation to change your current carrier, we simply seek to find the best policy that makes you feel comfortable. Since Altfest doesn’t sell any kind of insurance, we can offer truly objective insights into what would work best for you.
If you would like more information on a review of your disability insurance, please contact your Altfest advisor.
Sources: 1Social Security Administration Publication No. 05-10570. Released: January 2018. “The Facts about Social Security’s Disability Program.” 2Social Security Administration Publication No. 13-11785. Released: September 2017.” Fast Facts & Figures about Social Security, 2017.”
Veronica He is a Financial Planning Specialist. She creates financial models and evaluates budgetary items to help Altfest’s senior leadership make informed decisions as they advise clients on reaching their goals. Veronica holds an MS in Investment Management from Pace University,
Andrew Altfest, CFP®, MBA, President, is a leading voice on the firm’s Portfolio Action Group. He drives financial planning and investment strategies across the firm. Andrew earned an MBA from Columbia University’s Graduate School of Business and a BA with honors in English from Cornell University.
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