What is your most valuable asset? Your home? Its contents? Your business? For most working individuals, their ability to earn an income is worth far more than these physical assets. If you have a high school diploma, your lifetime earnings potential exceeds $1 million. As education increases, so do earnings.
For example, the “average” man with a professional degree will earn $4.03 million over his working life, while the “average” female professional will earn nearly $3 million. A disability can jeopardize this valuable asset. Long-term disability (LTD) insurance replaces a portion of your salary if you are unable to
work due to a disability.
The problem with group coverage: Only 33 percent of workers in private industry have access to group LTD through their employer. Even if you’re one of those lucky individuals with employer coverage, did you know that group LTD will replace only 60 percent of your pre-disability salary? And only 27 percent of group LTD plans include variable compensation, such as bonuses or commission income, when calculating your benefits. Most group LTD plans also cap monthly benefits at $5,000 or $6,000 per month, so high earners might have serious coverage gaps.
We can tailor an individual LTD plan to provide primary disability income coverage or eliminate gaps in an employer plan.
An LTD policy will pay you a monthly benefit until you either return to gainful employment or reach the policy’s maximum benefit period, whichever comes first. Group policies typically have shortened benefit periods, but many individual policies will pay benefits to age 65.
We can tailor long-term disability coverage to your needs by selecting the policy’s:
- Monthly benefit, or the amount that the policy will pay you every month during a qualified disability. Keep in mind that LTD policies will replace a maximum of 70 to 80 percent of pre-disability pay to give the disabled individual incentive to return to work. If you have group coverage through your employer, your insurer will generally coordinate your individual LTD insurance benefits with your group benefits so you won’t receive more than 80 percent of pre-disability pay.
- Elimination period, the time during which you must be disabled and unable to work (or partially disabled and suffering a loss of income) before benefits begin. Elimination periods range anywhere from three to six months of continuous total or partial disability. Generally, the longer the elimination period, the lower your premiums will be. If you have six months’ worth of living expenses saved or short-term disability benefits through your employer, you can elect a longer elimination period to save money. If you tend to live paycheck to paycheck, you will likely want a policy with a shorter elimination period.
- Cost of Living Increases, should you become disabled, keep pace with inflation. When receiving benefits you need your monthly benefit to grow.
It’s all in how you define “disability.” How your policy defines disability will determine when—or if—you receive benefits. Some policies consider you disabled when you are unable to perform the important duties of your own occupation. Others consider you disabled only if you cannot work in any occupation. Obviously, the policy with an “own occupation” definition offers better coverage. You will also want a policy that pays benefits for partial, or residual, disabilities, which may not prevent you from working altogether, but may lead to loss of income.
Together we can find a disability policy that best fits your needs and life.