We get up every day (hopefully) and go out into an unpredictable world and create an income which provides us with cash-flow and a lifestyle. In essence we are money-making machines. So yes, the most important asset we have is ourselves. We insure our cars, our homes, and medical expenses, yet if an illness or injury were to keep you from earning a living do you know how you would pay your bills? According to the Social Security Administration, more than one in four of today’s 20 year-olds will become disabled before reaching retirement age, and theU.S. Census Bureau finds that only 31 percent of U.S. private industry workers have Long-Term Disability (LTD) insurance as part of their insurance benefits package.
Cash-flow is Everything…
We count on our incomes to provide the necessary cash-flow to pay for all monthly essentials, expenses and any extra cash for savings or for having fun. If you were to get sick or injured and unable to return to work for 2-weeks, 2-months, 2-years, or 20-years, how would you sustain your current lifestyle? Without proper or minimum levels of disability income replacement insurance you would either be forced to spend down any personal savings or investments that you have worked so hard to accumulate, or have to depend on others to provide support for you.
Social Security and/or State disability income benefits may be available but social security income is typically very hard to qualify for and state disability income isn’t available from all states, and both pay a limited amount.
Properly protecting your income with long term disability insurance is probably the most valuable and most important type of protection you could (should) purchase and secure if you want to assure that you could maintain a similar lifestyle to that you are currently enjoying.
Disability Income Limits
To help limit the amount of fraudulent disability claims, it is not feasible for the insurer to replace 100% of the income that is lost due to disability. Because of this, most insurance companies will only cover up to 60% of the earned income of the insured. Depending on your profession, there may be special cases where insurance companies have made exceptions for certain professions, such as residents, interns, fellows and physicians, which allow a policy to have coverage in excess of the 60% threshold.
Disability Insurance For Individuals
Individual LTD insurance is a fully underwritten product. Benefit levels and approved rates are subject to current health, medical history, average income last two-years, and occupation.
Typical group long-term disability benefits, when provided to employees by an employer, covers 60% of salary (not bonus) and pays a maximum monthly (cutoff) amount of anywhere from $5,000 to $10,000 and in some cases even higher. The issue there is that the higher wage earning executive is most likely limited to a monthly benefit well below 60% of his earnings. This is often overlooked by the highly compensated executive who doesn’t address it and whose lifestyle would be most negatively impacted.
There are individual long-term disability “add-on” products that can be offered by an employer to cover the higher compensated employee up to 75% of their earned income adding an additional 15% to their base long-term disability benefits at work and with simplified underwriting to qualify.