YOUR FINANCIAL FUTURE / What do you know about disability insurance?

By Roxanne E. Fleszar, CFP, ChFC

Who do you call if you can no longer work due to a disability…your employer, your insurer or your lawyer? It’s important to know your options because during your working lifetime through age 65, you are three times more likely to become disabled than to die.

A disability policy and/or participation in the Social Security disability program (SSDI) will help pay for your basic living needs including your rent or mortgage, groceries and medical expenses but the amount and duration of the benefit varies greatly.

First, let’s review disability insurance. Most individuals who are employed by a major company or government agency receive short-term disability insurance as a benefit. That typically means that if you cannot perform the duties of your job, for up to one-year you will receive a significant portion of your income. Some folks also participate in a long-term disability policy; often you are required to pay a relatively small premium for it through a group policy. That means that you can collect on your policy after being disabled for a few years, until age 65 or even your lifetime. Most policies are designed to provide you with 60% of your income.

If you are self-employed, work for a small company that does not offer it as a benefit or are a highly paid professional, you should purchase your own policy. It is much more expensive than a group policy but it also can be non-cancelable and which means the company can’t cancel your policy except for non-payment of premiums. In addition, it will be guaranteed renewable which means you have a right to renew your policy annually with the same benefits. Note, the premium may increase but only if it do so for all policyholders in the same rating class as you. The premium is usually waived if you are collecting on the policy and the benefit can have an inflation rider which increases over time. Last but not least, if you own your own policy, the definition of disability is usually more lax. So instead of being “totally” disabled and unable to perform your job, if can’t perform the normal duties of your position, then you are able to collect your benefit.

I have had clients over the years ask me if it was worth purchasing disability coverage and the answer is almost always “yes”. Thank goodness that was my response for my client who was diagnosed and ultimately almost immobilized by multiple sclerosis in her early 40’s. Or the client whose car was hit by a drunk driver just before he exited it to play softball. In both instances, their disability policies covered their cash needs. The former called the human resources department of her employer as she participated in her employers’ long-term disability policy while the latter called his insurer as he owned a long-term disability policy.

Now you may think that you don’t need this coverage because you could call the government for help if you were disabled. SSDI requires that your doctor substantiate your inability to work. While the rules have become more liberal since 1984, many folks are rejected. Even though they may appeal the decision, it may take years to get approved, hence the call to a lawyer.

A SSDI benefit is typically small; the average is just over $1,000 per month. And while it is indexed to inflation, that rise has been paltry for the last decade, while medical costs have risen significantly.

One last point has to do with the viability of SSDI; it is in a dire state. The number of individuals and their dependents collecting a benefit has doubled in the past 30 years; it pays out more than it receives from the payroll tax. Congress has shifted funds form the Social Security trust fund which was meant to pay retirement benefits to SSDI numerous times over the years. Who wants to be dependent on a program that is broke?

For more information call your financial advisor or insurance agent. Do some research on your own through the Disability Research Center at www.di-resource-center.com. You may assess your personal disability quotient (PDQ) at www.whatsmy pdq.org.

Don’t procrastinate…a disability can happen at any time.

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

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