Professional Financial Managers
PO Box 460, Manasquan, NJ 08736 Phone: (732) 528-0003 Fax: (732) 528-7144
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Professional Financial Managers
PO Box 460, Manasquan, NJ 08736 Phone: (732) 528-0003 Fax: (732) 528-7144
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The basics of long term disability insurance By Insure.com Be sure to read The basics of short term disability insurance and the Disability insurance glossary. Many people don't realize the potential danger of becoming disabled. According to the U.S. Census Bureau, you have a one in five chance of becoming disabled. A 1997 study released by the Census Bureau reveals that more than 152 million people between the ages of 21 and 64 — the prime working ages for most Americans — have some form of disability. According to the American Council of Life Insurers (ACLI), a person age 35 is six times more likely to become disabled than die before he or she reaches age 65. With statistics like that, the need for long term disability (LTD) insurance becomes perfectly clear. Becoming disabled can have devastating financial implications by stripping you of your ability to make a living. While some people can get by without working for a few months by tapping into their savings, few people can afford to stop working altogether for an extended period of time. Causes of LTD claims
Source: UnumProvident That's where long term disability (LTD) insurance can help you. LTD policies provide you with income for a long period of time, such as two years, five years, or until you retire. Most people who have LTD insurance get it through their employers, although you can buy individual LTD insurance on your own. LTD in a nutshell LTD picks up where short term disability (STD) leaves off. Once your STD benefits expire (generally after three to six months), the LTD policy pays you a percentage of your salary, usually 50, 60, or 66 2/3 percent. You then receive benefits until you reach age 65. The average premium for a group LTD policy in 1999 was $180, according to John Hewitt & Associates, a disability research company based in Portland, Maine. What to look for in an individual long term disability insurance policy Definition of disability. Some policies pay benefits only if you are unable to perform the duties of your normal occupation, while others will pay only if you cannot work in any job at all. Payment trigger date. Some policies will allow you to decide when the payments begin. You can choose a waiting period at the time of your application. Extent of disability. Some policies require that you be totally disabled before payments begin. Other policies pay out for partial disability for a limited time, but most often only if the partial disability follows a period of total disability for the same cause. "Residual" benefits. Residual benefits can help make up the difference in your income if you are able to work, but are limited in your responsibilities due to your disability. Presumptive disability. Some policies will pay benefits if you are still able to work but still have loss of sight, speech, hearing, or use of limbs. When payments begin. You can choose to begin receiving disability payments anywhere from 31 days to the first six months. The longer you wait for a payment start date, the less your premiums will be. Length of coverage. Generally, coverage will pay you for two years, five years, or until you turn 65. The longer you receive payments, the more your premium will be. Keeping pace with inflation. You can purchase a cost-of-living adjustment (COLA) to add to your basic disability insurance policy. This provision generally increases payouts by 4 to 10 percent each year. Waiver of premium. Most policies contain a "waiver of premium" provision so that you do not have to pay premiums if you are disabled for 90 days or longer.
Source: National
Organization on Disability If you pay your own premiums and do so with after-tax dollars, your disability benefits will be tax-free. If your employer pays for the policy, most likely with pre-tax dollars, your disability benefits will be taxable. Most disability insurers will work with employers to try to get you back to work as soon as possible. While disability insurers want to see people healthy, rehabilitated, and back to work, they also save significant dollars if a claimant quickly returns to work. "Once you hit the LTD timeframe, you begin to manage the claim, in addition to paying it," says Eric Reisenwitz, senior vice president of group underwriting and disability claim operations for CIGNA Corp. You'll most likely find your disability insurer "managing the claim" if you are "partially disabled" — meaning you can still work, but in a job that pays substantially less. LTD will pay you additional money if you decide to take a lower paying salary, as outlined in the following example. Let's say you worked in a warehouse lifting crates making $40,000 annually. You then hurt your back at home and are forced to take a desk job that pays $20,000 annually. If your LTD policy was paying you 60 percent of your original $40,000 salary, it will now pay you 60 percent of what you are making in the lesser job. So now instead of staying at home and collecting $24,000 from your LTD policy only, you work at the lower paying job and make $36,000 (in addition to the $20,000 salary, you also get $12,000 in disability benefits, which is 60 percent of $20,000). "They get their income from a new job, and they still get some kind of benefit," says Tracie Foster, LTD product director at Hartford Life. "We want them to be better off working than not working." Monica Burnett, national accounts disability director for MetLife, says that some insurers will also reimburse the employee for child care expenses if the employee's spouse must go back to work as a result of the disability. "A lot of times, that's a huge factor in whether or not a person can return to work," she says. Drew King, vice president of marketing at JHA Associates, says that some disability insurers give employers an incentive to have workers return to work on a part-time basis. He says it's common for insurers to give employers a premium reduction on the group policy if they allow a partially disabled person to come back to work on a part time basis. If you become disabled and begin receiving benefits, you no longer have to pay premiums. Also, if you pay your premiums with after-tax dollars, your disability payments will be tax-free. If your employer pays for your group disability insurance with pre-tax dollars, your benefits will be taxable as income. Buying individual disability insurance Top individual disability insurance companies by net written premium (as of 1999)
Source: A.M. Best If your employer does not offer group disability insurance, or if you feel your existing group policy does not provide adequate coverage, you may want to consider buying an STD or LTD individual policy. According to the ACLI, a 35-year-old person who has a disability for 90 days is likely to be disabled for an average of three years. If you do not have individual LTD, going three years without working could be financially devastating. You can buy this through financial planners or the same agents who sell you life insurance or annuities, or, more rarely, though, auto and homeowners insurance agents. If you choose to buy it individually, King estimates that the average premium could cost more than five to 10 times as much as a group policy, depending on your age, occupation, and annual income. You must take a medical exam to prove your insurability. Individual disability pays you a flat amount each month, and most often you will not be paid more than 80 percent of your current salary. The insurance company examines your occupation, income, and other sources of insurance when determining whether it will cover you and what your premium will be. When it determines your rate, the insurance company places you in a rating class with people who have similar characteristics such as age, occupation, medical condition, and income. Most policies are sold on a "non-cancelable" or a "guaranteed renewable" basis. Non-cancelable means that after you take a medical exam and the insurer issues the policy, the insurer cannot cancel the coverage or raise your premiums. If you buy a policy on a guaranteed renewable basis, the insurer cannot cancel the coverage as long as you pay premiums, but it can raise rates. However, the insurer cannot raise rates on an individual basis. Rather, it will raise rates if you are part of an insured group that has experienced a very high number of claims. Generally, you can buy individual disability policies that will cover you for two years, five years, or until you turn age 65. Most individual policies also have features that allow benefits to keep pace with inflation or gradual salary increases, such as a cost of living adjustment (COLA), which adds a percentage to your coverage each year. Though disability insurance can be costly if you buy it on your own, King says it is an essential part of a person's financial plan. "Everybody should have some kind of disability insurance protection," King says. "Since you're much more likely to become disabled than you are to die, you can make a coherent argument that you need disability insurance more than you need life insurance." Top 10 long term disability insurance companies, ranked by earned premium Insurance company 2000 first-half sales (in millions) Market share
Source: John Hewitt & Associates Last updated July 25, 2002 The basics of short term disability insurance By Insure.com If you were to become sick or disabled tomorrow and were unable to work for two or three months, would you have enough savings to cover your living expenses during that time? If you don't, short term disability insurance (STD) would be an invaluable resource as you recover so you can get back to work. According to the American Council of Life Insurers, nearly one-third of all Americans will suffer a serious disability between the ages of 35 and 65. Statistics like that make should make short-term disability insurance a vital piece of your overall financial plan. What is STD? Short term disability (STD) pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work for a short period of time due to sickness or injury (excluding on-the-job injuries, which are covered by workers compensation insurance). A typical STD policy provides you with a weekly portion of your salary, usually 50, 60, or 66 2/3 percent for 13 to 26 weeks. Philip Bruen, vice president of group income protection products for UnumProvident, says that most STD policies have a "cap," meaning you receive a maximum benefit amount per month. Causes of STD claims
Source: UnumProvident The average premium in 1999 for a group STD policy was $144, according to a survey by John Hewitt & Associates, a disability research company based in Portland, Maine. STD insurance, which is most often purchased as part of a group at work, can be paid by either the employer or the employee. Group STD policies are "guaranteed issue," meaning you do not have to take a medical exam to prove insurability. You generally start receiving money from your STD policy within one to 14 days after becoming sick or disabled. The actual time for coverage to kick in depends on whether you suffer an illness or injury. If you suffer an injury, your benefits will be paid immediately. If you suffer an illness, it will take longer because there needs to be enough time to show that the illness is grave enough to be disabling. For example, if you severely injure yourself by falling off a ladder at your house, your benefits would kick in immediately. However, if you suffer from a serious illness and can't go to work, your insurance may not kick in until eight days after you became ill. Also, your employer may have additional restrictions as to when your STD policy kicks in. For example, your employer may require you to use all of your sick days before you begin receiving payments from your STD policy. You also may receive retroactive benefits if you have a condition that worsens over time. For example, let's say you have a cold and you took three sick days at work. If your cold evolves into pneumonia and you need to be hospitalized for three weeks, you would receive disability pay retroactive to your first sick day. Who should buy short term disability? Individual STD policies are available on a limited basis. Some insurers sell "accident policies" that will pay you money each month for a year if you are injured in an accident, but most people do not opt for that coverage, according to Drew King, vice president of marketing for JHA. If you have enough in savings to last until you go to work again, you probably don't need to buy STD or an individual accident policy. However, if you do not have much in savings or any other income to fall back on if you were to become disabled, an individual STD policy may not be a bad option. "You can buy individual STD policies, but they're very hard to find and they're very expensive," King says. "Most people think they can get through six months to a year [with] their savings, or some kind of salary continuation, or help from their parents." Top 10 short term disability insurance companies, ranked by earned premium Insurance company 2000 first-half sales (in millions) Current market share
Source: John Hewitt & Associates |
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