Q: I have been receiving advertisements for disability insurance. Wouldn’t Social Security, health insurance and/or worker’s compensation pay me if I couldn’t work?
A: There are a lot of misperceptions about coverage for disability income. Just to clarify, worker’s compensation might replace some of your income if your injury or illness is work-related. According to a National Safety Council 2008 Injury Facts, only about 10 percent of disabling injuries and accidents are work related. Social Security does provide a disability insurance program.
However, qualifying for coverage can be a difficult and lengthy process and payment levels might not be sufficient to cover lost wages. The Social Security Administration’s 2008 Fact sheet shows that the average monthy benefit for Social Security Disability Insurance (SSDI) was $1,004 per month. It is reported that less than half of claims are approved. Finally, your health insurance does not cover lost wages. This is not a criticism of these programs, it is just the facts.
As with any other area in your financial planning process, it is important to be proactive in reviewing your disabilty insurance options. We all see the need to cover other assets (real estate, cars, boats, jewelry, etc), but for many the ability to work and earn a living might be their largest asset. I am startled that more people do not seek the important protection that disability insurance provides. This is a risk that is real and that happens more frequently than most people realize. Protecting your income is an important aspect of your financial plan.
The first step that I would take is to check with your employer and see what might be offered through your job. Many employers offer some type of short-term and/or long-term disability coverage. Coverage may be provided by the employer or it may be something that is offered to you on a voluntary basis. Group coverage might be easier for some individuals to qualify for than trying to obtain an individual policy.
If coverage is not available, or you wish to search all the options that might be available, then private individual insurance coverage is available through many major carriers. Check with your adviser or insurance professional about programs that are available. One advantage of an individual policy is that you can tailor it to meet your individual needs and it is not tied to your employment. Some things to look for are: the strength of the insurance company, how is disability defined, how long of a waiting period is there, how much and how long does the policy pay, are there partial benefit provisions, what are the cancellation and renewal provisions, and is their inflation protection? As you can see, you must look at all of the provisons of the policy to get a true apples to apples comparison. Generally there is a reason if one carrier is significantly cheaper than others. Know what you are buying.
I can’t emphasize enough that disability insurance should be a key component in your financial plans. You work hard to provide for your family and your future security. Be sure that you have something in place to keep working for you if you are unable to do so yourself.
Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Greg Epps is a registered representative and Certified Financial Planner with Epps Financial Partners. Securities are offered through NEXT Financial Group Inc., member FINRA/SIPC. Submit questions to his attention by writing to Business Editor John Vass Jr., Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by e-mailing him at jvass@timesfreepress.com.
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