Disability insurance is the last thing we want to pay for . . .

Disability insurance is the last thing most
people want to pay for….but the facts and statistics are glaring.  Disability is the cause of 48% of mortgage
foreclosures and nearly half of Americans who file for bankruptcy did so after
being disabled by an unexpected illness or injury.  About 1 in 5 Americans have some kind of
disability and about 1 in 10 Americans have a severe disability.  Disability insurance coverage protects the
most valuable asset that most people possess—the ability to earn income.  

This ability to earn income may be
interrupted by either a short-term or long-term disability.  Short-term disability may occur more
frequently than you would think.  And the
likelihood of having a disability keeps increasing with age. Surprisingly,
long-term disability is frequently more financially devastating than death. In
the next hour, more than 194 people in the U.S. will be injured in
a car accident, more than 57 homes will catch fire, more than 230 people will
die and more than 1,027 will become disabled. 

Policies may vary greatly in the benefits
provided.  And your individual
circumstances may dictate what type of coverage you want.  For example, a business owner may want to
insure not only their income but the continued viability of their business
operations and the welfare of their employees.

Look for company strength. The
first question you need to ask is whether the insurance company is financially
sound.  There are about six major insurance
companies left that still offer disability insurance.  Don’t use smaller without checking their
financial statements. To check insurance company ratings, check moodys.com,
standardandpoors.com
or ambest.com.

Look for a non-cancelable contract.  Renewability
addresses whether your policy’s terms are subject to change over time. The
non-cancelable contract, especially if price is not an issue, is by far the
best of the three. That’s because it locks in your rates and benefits. The
insurance company can’t make changes unless you request them. A guaranteed
renewable policy is less desirable. After you invest in a policy, your insurer
doesn’t have the right to drop you, but they reserve the right to raise prices
for specific reasons.  At all costs,
avoid conditionally renewable policies. An insurer can put any condition on
them or raise rates at any time.

Look for a broad definition of "total disability." The most consumer-friendly definition of total disability
is "own-occupation disability." If you are disabled and cannot
perform the primary duties of your current job, you will receive your
disability benefit…even if you are able to perform some other tasks. But even
when disabled, most people want to keep working.  With own-occupation coverage you’re not
penalized for working at the donut shop, even if you can’t yet go back to your
full-time job. The most conservative definition of total disability is
"any-occupation disability." Under this definition you do not get a
benefit unless you are completely unemployed and unable to do any work.

Buy residual or partial disability coverage. Insurers pay partial disability benefits if you can only
work at your job for a reduced period of time. After an accident, for example,
someone might leave work entirely for six months, then work on a reduced
schedule for the next year. If working part-time meant the person lost a
percentage of his income, partial disability coverage would kick in and pay a
proportionate benefit.

Get the appropriate riders. If you have disability coverage, you may not use it for
decades — if ever — and $3,000 a month in ten years will buy you considerably
less than it does now. You might want to buy an “inflation rider” that adjusts
your policy for inflation, particularly if you’re young.  Another option to consider is a "future
purchase option" – it allows you to buy more coverage as your salary rises
or your business expands. This is especially good for people just starting
their careers.

Price.  Disability insurance
premiums will typically cost between 1 percent and 3 percent of annual income.
Prices will vary according to several main factors, including your age, gender,
health history and occupation. The more likely your occupation is to result in
disability, the more expensive your coverage will be.  Another factor affecting your premiums is the
policy’s elimination period. That’s a specified length of time that must
transpire after the date of disability before the company starts paying your
benefits. You can choose an elimination period as short as 30 days or as long
as 720 days. Most people choose 90 days. Generally, the longer your elimination
period is, the cheaper your premium.   You’ll
also have to choose a benefit period, or the length of time the insurer will
pay you benefits. Benefits may last two years, five years, to age 65, age 67,
or for the rest of your life. Most people choose the age 65 option. The longer
your benefit period, the more expensive your policy will be.

Leslie A. Margolies, JD, Financial Advisor, The Zucker Berne
Lieberman Financial Consulting Group of Wachovia Securities

Leslie.margolies@wachoviasec.com

www.ZBL.wbsec.com or
www.SmarterPortfolio.com

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Kathleen A. Hunt

Licensed since 2004

Member at firm Kathleen A. Hunt

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