By Erik Miller
Most of us work for the love of what we do, but also for the income we earn. The truth is, in our prime paying years, few of us want or can afford a life of absolute leisure.
So, it’s always interesting when I ask people what their greatest asset is. Typically, they will mention their investment portfolio or some other significant asset. But they completely forget about the “Golden Goose”: themselves and their ability to earn an income. An important question to ask yourself is: “If you were unable to work for an extended period, due to illness or accident, where would the money come from to maintain your lifestyle and that of your family?” your family, finance your retirement or grow your investment? wallet?”
If you don’t have an answer, or if you haven’t really thought about it, it could end up being a big financial misstep. The answer to the above question is actually quite simple: disability insurance. It is there to replace part of your income if you are ill or injured and unable to work and earn a living.
A key for high-income earners
Having said that, disability insurance can be a complicated concept, especially if you have a high income. This is due to the nuances of the product, what type of font you have, and where you get it from.
Let me explain with a quick anecdote. I changed jobs recently, and in the whirlwind of initial HR paperwork came the choices – or at least the information – that we all have about our benefits, including insurance products, like insurance. life and disability insurance. Now, I have worked in this industry for over 20 years, and even I was about to ignore what my new disability insurance benefits were. But I didn’t, and neither should you. With the “Great Resignation” many of us have shifted our priorities and positions, making this the perfect time to focus on this very important advantage.
With high income earners I can say with some confidence that what is usually offered in the workplace is not enough for you. This is because disability insurance policies generally cover between 50 and 70% of your income. But, and this is a big “but” for high income earners, there is a cap on the amount of income that is covered by this policy.
Suppose you have a policy that covers 60% of your income, but it caps at $ 180,000 in annual payment. Could you live with the maximum limit of your labor policy? Do you even know what it is? In addition, your work disability insurance benefit may be limited to a period of time, for example three or five years. What if your disability looks like a progressive illness that ends your professional career?
This is what happened to Scott Rider, a financial services professional who had a successful career and a young family. His career ended when Parkinson’s disease prevented him from continuing, (watch his story here) however, with his investments early in his career, disability insurance was there to bridge the gap for the rest of his career and allow Scott and his family to maintain their way of life.
For those with higher incomes, a good option to explore is to purchase an individual disability insurance policy that you own, in addition to the one offered by your company. This means that no matter what changes you have in your career, this policy is there for you every step of the way to ensure there are no gaps in coverage. It also serves as a supplement and support to any coverage you receive in the course of your work.
How to get it
Because the idea of income replacement is so tied to your other wealth strategies, disability insurance is a topic to explore with your trusted financial professional. After decades in this business, I know disability insurance is the most overlooked of the major insurance coverages, and I am saying it on both sides of the table. As a client, you often don’t know how important this is, and advisers often ignore it as well, due to the perceived complexity. So this is one area where I encourage you to be proactive in seeking and getting the coverage you need. If your advisor is unfamiliar with disability insurance, they may work with an insurance professional who is.
Here are a few points that I would understand and discuss with your financial professional when discussing disability insurance:
Find out what you have at work first. If you glossed over your benefits when you started and aren’t sure what type of disability insurance coverage you have, now is the time to put it right. Make an appointment with your HR representative to find out the details of your coverage. (And while you’re at it, also check your life insurance coverage. You most likely need an individual life insurance policy as well.)
Don’t forget about other income. If your salary is just the start and you rely on bonuses and other benefits to supplement your compensation, this is important information to explore with your advisor so that you can close any income replacement gap with an individual policy.
Understand your own occupation versus any occupation. You’ve made a name for yourself in the company you work for. It’s what you know, it’s what you do, in some cases it’s who you are. It is therefore essential to have an individual disability insurance policy that covers your “own” profession. This means that if you cannot practice your covered profession, your benefits will come into effect. Any profession would mean that you would only be covered if you couldn’t work in a profession. The difference is huge.
You can have multiple fonts. Just as you might have several life insurance policies to cover different needs, so can disability insurance. The benefits of the two policies work in conjunction.
Business owners can go further. If your business is your livelihood, you’ll want to explore with your business partners how a buyout agreement funded by disability insurance can keep the business going if either of you is unable to work due to an accident or from an injury. You can watch the story of lawyer Peter Zatir of how throat cancer ended his litigation career, but proper planning with disability insurance ensured that he was bought out from his part of the business. He lost his career, but not his way of life.
Do it now
Perhaps the most important thing to remember with disability insurance is not to delay putting it in place. Getting coverage is not something to be done in the future, it is something to be done now because none of us know when the unexpected can happen. Valerie King is a perfect example. Young mother of three children, she had dreamed of nothing other than to be a doctor. However, when she was in her thirties, ulcerative colitis put an end to her medical career. It was her disability insurance that enabled this single mother to raise her three daughters and send them to school (watch his story here). Imagine where she would have been without disability insurance. And the key question for you is, where would you and your family be financially without disability insurance if an illness or accident prevented you from working?
About the Author: Erik Miller
Erik Miller is senior vice president of insurance and benefits with AdvisorNet Insurance, based in Minneapolis, and is the chairman of Life Happens non-profit education insurance. AdvisorNet Insurance offers a full range of insurance services, including life, health, disability and long-term care insurance, in addition to annuities, benefits and Medicare. The company partners with you as an extension of your back office and front office through its exclusive concierge sales program.