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     Disability Insurance: Never Leave Work Without It

How are you going to pay the bills if you’re INJURED and unable to work for a long period of time?  Unless your employer continues your income or you’re independently wealthy, you could be facing a financial nightmare.   For most people, the answer is DISABILITY income insurance -- insurance that pays your bills and provides income for you and your family to live on until you’re able to return to work. 

People often react to disability by saying, “it will never happen to me.” But statistics show that disability is a real RISK faced by virtually everyone.  In fact, studies show that the likelihood of a person being disabled for three months or longer before age 65 are 58% at age 25, 45% at age 40, and 33% at age 50 (Providence Business News, June 9, 1997). Despite the need for disability insurance, most people still do not have ADEQUATE disability insurance protection. Many of those who do have long-term coverage do not have sufficient amounts of coverage to adequately provide for their total financial needs.

The first step in taking action against this potential financial disaster is to seek out the proper COVERAGE to meet your needs.  While this article will outline some major points you need to know to choose the right disability insurance for you, you should also consider meeting with a financial representative who will help you identify your disability income insurance needs. 

Once you’ve made the decision to purchase a policy, you need to determine how much you should purchase.  To start, you should estimate your present monthly EXPENSES and sources of INCOME to meet those expenses should you suddenly become disabled.  The DIFFERENCE between the two figures will guide you to the amount of disability insurance needed to fill the void, and it may be safer to consider a policy that more than meets that figure.

Now that you have an understanding of how much disability insurance to buy, you must consider what TYPE of policy is right for you. To make an educated decision, a basic understanding of terms used in disability income contracts is essential. A non-cancelable, guaranteed renewable policy means that the policy can never be CANCELED, as long as you pay your premium, and the premium rate is guaranteed to age 65.  While policies with these provisions are generally more expensive than ones in which the insurer has the option of refusing renewal, the policy’s extra cost is often worth it. 

Definitions of disability are the four basic CONDITIONS under which disability benefits may be paid.
  • the ANY occupation definition allows you to collect only if you are unable to work at any position for which you are reasonably fit by education, training, and/or experience and you are under physician’s care

  • the REGULAR occupation definition allows you to collect disability payments if you can’t perform your current duties and you are not working in another occupation

  • the OWN occupation definition allows you to collect the full Total Disability Benefit if you can’t perform your important duties of your occupation, even if you are working in a different occupation and you are under physician’s care

  • under an income REPLACEMENT policy, if you lose a certain percent of income due to disability, you could collect a percentage of the benefit as a ratio of the difference between your former earnings and whatever income you can earn after disability

Inflation can erode the PURCHASING power of coverage over time, making the disability policy inadequate should a claim occur.
  • An AUTOMATIC Increase Benefit may help maintain the purchasing power.  It will automatically increase the monthly benefit, while you are healthy and actively at work, by a specified percentage for a certain number of years.

  • If your income is going to increase dramatically in the future, a FUTURE Income Option Rider may be desirable.  This rider may allow you to purchase additional benefits, based on increased income and maximums and avoid medical underwriting.

  • Upon claim time, a COST-OF-LIVING Rider will increase your monthly benefit while you already collecting disability income. There is usually a minimum and a maximum Cost-of-Living benefit based upon a fixed amount or a Consumer Price Index factor.

There are also many optional riders available to help customize your coverage to meet your exact needs and budget. Most disabilities begin with a total loss of earnings power, but some do not!  If your earnings ability would be impaired if you could only work part-time, you may want to consider a RESIDUAL Disability Rider which will supplement the loss of earnings.   

A LIFETIME Disability Income Rider can guarantee that your retirement savings will not be depleted if you were struck with a long-term disability during your early fifties.  It will provide the continuation of benefits for life as long as your total disability started before a specified age (which varies from many contracts and most carriers do not offer this rider today).  Also available are Premium Refund Benefits, Supplemental Social Insurance Benefits, Hospital Confinement Benefits, and Reduced Elimination Period Options.

In conclusion, the financial planning process begins with managing your risk effectively.  Whether you are a professional or small business owner, it is only after you adequately insure your income, life, and property that you should consider the other areas of the financial planning process.  Keep in mind, however, that your earning power is the FOUNDATION on top of which all other future investment must be built.


Terry Leard is a financial services professional with New England Financial Group of Georgia, and a registered representative of New England Securities. He works with individuals and entrepreneurs in the areas of Asset Protection, Income Protection, Retirement Planning, and Estate Planning. Terry has more than nine years’ experience with the firm and has been advising individuals and businesses for more than 20 years. You can contact Terry at 770-505-6376 or , or visit his website at www.nefgeorgia.com.

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