Disability insurance is one of the most important ways your clients can maintain their financial freedom, but they often have misconceptions about it.
Sharing these actual facts can unmask these common misconceptions about disability insurance in general.
Myth #1: “I don’t need my own disability insurance. It’s part of my employer’s benefits package.”
There are a few problems with this. First, it is likely that your clients’ employer-provided disability insurance coverage will only cover a portion of their base income—60% is typical. Furthermore, the benefits are capped. So, if 60% of your client’s income is higher than the cap, their benefit will be less than 60% of their base income.
Second, the words “base income” are important, especially if your client’s take-home includes overtime, performance bonuses, etc. Furthermore, any paid benefit will be subject to tax, if the premiums for that coverage are paid with pre-tax dollars. Also, most employer-provided disability insurance is not portable. If your client changes employers, the employer-provided disability income coverage does not follow them.
Myth #2: “I doubt that I will ever be disabled.”
In fact, according to the Social Security Administration, there is an approximately 1 in 4 chance that a person will be disabled at some point during your working years. The disability might be caused by an accident, but around 90% of long-term disabilities are the result of disease or illness. The average length of a disability claim? Close to three years! Three years of severely reduced income would likely compromise your clients most cherished financial goals—a secure retirement, college educations for their children or their current lifestyles.
Myth #3: “Social Security or Workers’ Compensation will cover me.”
That could be true, but the benefits are likely to be slow in coming, and they often do not come close to replacing the income your clients have lost. In addition, Social Security uses a strict definition of disability and pays only for total disability. No benefits are payable for partial disability or for short-term disability.
It is more realistic to think of Social Security as one possible source of disability income, rather than the primary source. Workers’ Compensation might cover your clients if they are injured on the job. Yet, the overwhelming majority of disabilities are disease and illness related. For insured men and women in their prime working years (30-59), the medical conditions causing the most disabilities are cardiovascular problems, musculoskeletal conditions and cancer.
Myth #4: “Disability insurance is too expensive.”
Insurance costs are based on risk, and as was pointed out earlier, there is a very real risk that a disability will occur, and that it will continue for years, rather than months. Those factors are reflected in the premiums. However, there are ways to achieve reasonable premiums. Source Brokerage’s disability income specialists can help you tailor a plan that fits the unique needs of your client.
Myth #5: “True own specialty” is the only way to go.
An “true own specialty” provision in disability insurance is a must for physicians and dentists and other professions that are highly specialized. It means that their disability insurance will pay benefits as long as they are unable to perform the normal activities of their board-certified specialty.
One, “true own specialty” pays benefits, even if your client can continue to earn income in another specialty or occupation—for example, teaching neurosurgery rather than performing it. So, they could collect their monthly disability benefit in addition to the salary they are earning in another occupation. However, this option can be expensive.
On the other hand, the modified “own occupation” definition of disability allows the insured to receive the maximum monthly benefit if he or she is disabled in his or her occupation and not engaged in any other gainful occupation. For many occupations this is a quality definition because their skills are not highly specialized, such as an executive, sales professional, IT consultant, or business owner. If they could not perform the duties of their occupation, they likely could not work at another occupation either. This option is less expensive than the “true own specialty” definition.
Our disability income specialists can help you develop a disability income plan for your client as well as and assist with the presentation and sale.
To learn more, contact Steve Crowe at ext. 222or request a quote.
