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Posted: May 01 '22
Let’s start with answering this question: what is disability insurance? The legal definition would say disability insurance is a type of insurance product that provides income in the event that a policy holder is prevented from working and earning an income due to a disability.
When our potential clients read this, the questions I get asked are:
The answer to all the most common questions is no and at best maybe.
Disability insurance is not for a broken leg, and you certainly will not get a pay out from a disability contract if you lose your business or just quit work. To have all of your disability insurance questions answered or get a quote, speak to a Vistaplan insurance broker today!
Disability insurance pays a monthly benefit (the monthly amount you purchased), for each month after the elimination period that because of an injury or a diagnosed illness that keeps you from working.
Remember you do not determine if you are disabled. You will receive benefits when your doctor is able to complete a form, telling the insurance broker you have been diagnosed with an injury or illness and their recommendation is that you can not work at this time.
For those months that you must leave your work, your business, or your profession you will receive the monthly benefit you purchased.
Your health is worth everything. To put it in perspective, if someone earns $10,000 per month, this person will earn $600,000 every 5 years. Now even if you have this money in the bank, to replace it would require you earn $1.2 million and pay tax to have $600,000 after tax. Why would anyone want to take that risk?
Disability insurance is the solution. If you suffer a serious accident or are diagnosed with a long-term injury and can not work, your income stops. Your disability benefit will keep you and your family afloat. Family expenses don’t just stop because you do.
You would think that the definition of Total Disability should be easy to understand, but unfortunately, it’s not so straightforward.
Every disability contract contains a section that states how that particular contract defines total disability. It usually reads, “total disability means….”
This is important because as stated earlier you can not decide if you are disabled, and the contract is a legal document. The company prices a contract based on the definitions and one of the most important definitions is how they define total disability.
There are 3 basic total disability definition in the industry. Group plans and some private contracts cover you for 2 years in your occupation. Then the definition changes and you will still receive the monthly benefit if you are not able to participate in any occupation by reason of education training and experience.
The better private contracts define disability to be your occupation to age 65 unless you choose other work. If you choose to work at another occupation you would be considered residually disabled.
The third type of definition is called “own occupation.” If you can not preform your original occupation, you receive monthly benefits to age 65, even if you do other work. But be careful! It is your responsibility to show the insurance company that you can do something else but not your original occupation. Work with a knowledgeable agent that understands disability contracts so that you get all the information you need to make the right decision in your individual case.
The next feature is residual disability. “What is residual disability coverage?” you might ask. There are far more people that end up working part-time on a reduced basis after an accident or injury than those that are left totally disabled. Residual disability would pay you a partial benefit along with your income to help support you until you fully recover. Of all the benefits paid by insurance companies, residual benefits are a large percentage of all benefits paid out. Make sure you ask about residual benefits when you explore your quotes.
Cost of living, another benefit that keeps up to inflation. This increases your monthly benefits and can be very valuable if you are young and suffer a serious long-term disability. If you are getting your contract at age 45 or older, this may not be as valuable.
The last feature that should always be considered is guaranteed insurability. This allows you to increase your benefits in the future without medical underwriting. For example, you go skiing, and injure your knees. It might not be disabling but if you were to purchase a disability insurance policy after that accident your knees would be excluded. With guaranteed insurability you can increase your month benefits and not have to answer any medical questions.
Well, you have decided maybe you should look at some disability coverage for yourself. What are the next steps?
You need a quote. To get a quote you need to provide the following information.
The obvious stuff is:
The less obvious is:
“Why do I have to give all this information?” you might be asking. Well, the obvious information will determine that rates. They are always based on age and smoking status.
The less obvious list will determine the plan you might qualify for. Every occupation is placed into an occupational class by the insurance industry. Then disability contracts are written and priced for the different occupational classes. This means that if you are a carpenter, for example, and does manual labour, you will be eligible for different contracts than someone who works in an office. Some of this has to do with the risk of the job and some of it has to do with the stability of the job.
For example, if you are a medical doctor, it has taken years to train into this field. If a disability occurs the company has some certainty that you would try to get back into medicine. Whereas if you are a carpenter and disabled the company has no idea what occupation you might try next.
Once this information is provide the agent can look at the different products available, educate you on your choices and show you what each will cost.
Sometimes clients say to me, “but disability insurance is so expensive.” The monthly disability benefit you purchase will be a maximum of about 70% of your current income. And that is because disability benefits received are tax free.
But the cost of disability insurance monthly is more than most life insurance products. If you think about it, life insurance is a very permanent event. Life insurance is paid when you finally go to your permanent retirement plot. But a serious disability can be much more devastating in the family. You are still alive and the bills keep coming. Many times, the mistake clients is that they want the maximum they qualify for or nothing at all. This is not the way to think about disability insurance.
Imagine this picture: You’re in a hospital bed, the doctor has just given you the bad news that you will not be able to work for at least 3 years. Your family is by your bed side. What goes through your mind? It might be, “how long will our savings last?”
Then your agent walks in and reminds you that you purchased a small disability policy years ago and it will pay you $1,500 per month for every month that you are unable to work. Will you or any member of your family say, “that is not enough!” Or will that $1,500 be just a little more comfort and take a little stress off the savings account.
In life we all buy lots of different types of insurance. Car insurance, house insurance, even insurance on appliances or computers we buy. But in those moments, in that hospital bed, with the bad news of not being able to work, will any of these pay you a penny?
In the 30 years in this business, I have learned that there is no insurance more important than disability coverage. Yet business owners, people working on contract, and professionals question the importance of disability coverage.
Our clients have received millions of dollars in disability benefits over the years. One client received over 1 million dollars on his own. Cost is a factor to consider, but everyone who is self employed should invest what their budget can afford because when you need it, no amount is too small. Call a Vistaplan insurance broker and ask for a quote today and start collecting the information you need to make the best decision for you and your family.
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David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their
families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance
products they are purchasing, so they can make the right choices for their budgets, plans, and futures.
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