By: Roger Green, MSFS,CFP® | Your Green | Green Financial Resources
Published: 2017-09-12 15:24
Date Modified: 2017-09-12 20:01
Roger Green, MSFS,CFP®

Just over 1 in 4 of today’s 20 year olds will become disabled before they retire.¹ About 20% - or 1 in 5 American adults- have a disability according to the CDC July 2015. The majority of wage earners believe they have a 2% or less chance of being disabled for 3 months or more during their working career, but the actual odds for a worker entering the workforce today are about 25%.¹ Medical problems contributed to 62% of all personal bankruptcies filed in the U.S. in 2007.² None of us know what challenges life will bring and that is why you should consider disability insurance.

Many assume they would qualify for Social Security Disability benefits – or haven’t actually given this issue any thought at all. According to Social Security Administration info, the average monthly benefit paid by Social Security Disability Insurance (SSDI) in 2017 was only $1,171 per month.¹ Can your family live on $14,052 per year – or possibly less? And of the estimated 53 million adults with a disability of some sort, only about 8.8 million disabled wage earners have qualified for SSDI benefits3, so even if you could live on that income level, will you even qualify for benefits and how long might it take to become qualified?

According to the Council for Disability Awareness’ 2014 Long Term Disability Claims Review, the following were the leading causes of new disability claims in 2013:

• Musculoskeletal/connective tissue disorders (28.6%)
• Cancer (15.1%)
• Injuries and poisoning (10.3%)
• Mental Disorders (8.3%)
• Cardiovascular/circulatory disorders (8.7%)
• Nervous System Related (7.7%)
• Complications of Pregnancy/ Childbirth (5.9%)

You have probably insured your home, cars and other property against damage and theft, but have you protected your most valuable asset – your ability to work and earn an income? How many months would you be able to continue paying your mortgage and other living expenses if you lost your ability to earn an income?

Fortunately, disability insurance is available and it is coverage most working Americans should consider. Your employer may offer group disability coverage. If you opted out previously, now may be the time to reconsider. A financial professional can work with you to evaluate the coverage offered by your employer to help you select the levels of coverage you need.

If group coverage is not available, there are vendors who offer individual non-cancelable, guaranteed renewable Disability Income (DI) insurance policies that might be appropriate for you.

There are two basic categories of disability policies available – short term policies, and long term policies. Short term disability policies usually cover a percentage of your income, and pay you starting after 7 or 14 days of being out of work, up to usually 3-6 months. Long term disability coverage generally pro-vides benefits beginning 3-6 months after disability begins and continues to pay until you go back to work, age 65 or for the number of years stated in the policy.

Generally disability benefits provide 50-60% income replacement, depending on the policy. Nearly all provide that the benefits will be offset, or reduced by, the amount of any Social Security, Worker’s Compensation, or similar benefit you may be receiving. Disability insurance is not designed to replace 100% of your lost earnings, even in conjunction with other benefits you may be entitled to receive.

Disability policies have basically three different definitions of disability, and this is very important, as this definition determines if you qualify for payment in the event of a disability. These three definitions are:

• Any occupation – covers you if you can’t do the duties of any occupation, similar to Social Security. It is the least protective of all disability definitions.
• Modified own occupation – This policy will generally pay you if you can’t do the duties of your own occupation, and you’re not performing some other occupation. In this policy, the insurance company leaves it up to you as to whether or not you work again. If you do, they will reduce what they pay you based on your new income. Some policies include a modified own occupation for a limited period of time (most commonly two years), followed by the any occupation definition thereafter. 
• Own occupation – This is the best definition of disability available. It states that you will be considered disabled if you cannot perform the material and substantial duties of your current occupation, In effect, you’re buying a policy to pay you if you can’t do your specific job, even if you chose to go back to work in another job, although your payments will usually be reduced by your other earnings. 

Look for policies with a cost of living adjustment (COLA) rider that will increase your monthly disability benefit, once you’re disabled and receiving benefits to keep pace with inflation.

Also, assess the need for a future increase option, which is a rider that provides you with the ability to purchase additional coverage in the future with no further medical underwriting. This rider provides you with the ability to periodically increase your benefit level to correspond to increases in your earnings as you progress in your career.

If you own a small business, you may need to consider overhead expense and disability buy-out coverage to protect your business and your income stream from that business. Overhead expense insurance covers things like rent, utilities, and other fixed expenses of running a business; and is generally designed for businesses that rely on a small number of people (or one person) to produce the income that keeps the business running. Disability buy-out insurance is designed to provide the funds needed to purchase a disabled owner or partner’s interest in a business if they become disabled

When you apply for most disability policies, your medical history and usually some sort of examination are required. Many wait until health issues develop before they consider adding this coverage- and then it is often too late. You owe it to yourself to protect your income, your home, and most of all, your family. Don’t let an unexpected situation ruin your financial security. To plan for coverage to protect your financial independence, call my office at 770.931.1414 or through www.rogersgreen.com - or contact another financial professional – but act today.

¹U.S. Social Security Administration. ²U.S. Courts, Bankruptcy Statistics 12-month period ending Dec. 2007 ³Council for Disability Awareness

Roger S. Green is a Registered Representative with Cetera Advisors LLC, member FINRA, SIPC, with his office located at 3700 Crestwood Pkwy Duluth, GA 30096. Hear more “Your Green” Saturdays 10-11AM on 970 AM. For more information, please visit www.rogersgreen.com.