Imagine that you were in an accident or worse, you suddenly got a terrible illness that was not cured. Let’s say that you were not able to sit at a computer, or type, or drive in a car, or stand for longer than a few minutes or even sit up. I will leave aside any anxiety, mental health type illness but those are disabilities too. You could not, verifiably, work. After a while, your employer if you worked for someone else, your pay would stop. If you were self-employed, like me, and because you could not work, you had no work income. How long would your financial situation change?
Other risks: Like most people, you insure your car, and your home.
Some people even buy insurance for their new TV.
Well, what about your income? You heard me. Did you insure your income? How long would your employer keep paying you if you were out with a disability? How long would your vacation and sick days last before your short term disability insurance kicked in to pay your wages? And then what?
If your disability will last for more than 6 months but not less than 12 months, you could be considered to have a long term disability.
If you do not buy long term disability that is offered by your employer, you will have no wage income after six months or so. But if you do buy the long term disability benefit offered, it has caveats that you must factor in:
- Employer based disability insurance usually pays only 66% of your BASE; commissions are not covered;
- If you pay for the policy the benefits are tax free; if your employer pays, they are taxable income
- The max coverage is around $12,500 per month. So if your base was more than $200,000, you are going to have to rely on other monies to meet your financial expectations.
- Getting the insurance company to pay you the long term benefits is going to be a fight. They will likely deny you as they do most and you will need reams of doctors exams, and tests even if your disease is not one that shows up on an MRI or in blood work. You will likely have to appeal their decision with more documentation and have an independent medical exam.
- The employer offered LTD benefit is provided by an insurance company that will likely require you to file for social security disability to receive the full benefit. They will require that you apply and get denied by social security.
Private long term disability can close this gap but it is often thought of as expensive. But think in relative terms. In some cases, you may get denied initially as well but with a strong appeal you can receive your full privately paid, tax free, LTD benefits.
Let’s say you earn $500,000 or $45,000 per month before taxes. Let’s also say that your 40 years old or so and the likelihood of a disability exists over a ten year period. Let’s also say that your private disability, costs $10,000 a year. Actually, let’s ratchet up the costs $20,000 a year for the sake of hyperbole. Over 10 years you spend $200,000.
At age 49, you get exposed to something or get in a car accident and are never the same again, at least for a while. In your sixth month, your company wages and short term disability stop BUT then you get long term disability benefits (that you purchased) for one year.
Let’s say you bought $45,000 a month gross coverage for the $20,000 per year premium. (This is just an example, actual premiums and benefits vary by age, health and actual income)
Was it a good investment? After six months, you’ve received $45,000 x 12 months.
You’ve spent up to your disability $20,000 x 9 years in premiums up to your disability.
What if your long term disability continues?
While it is not the main focus of my practice, I have helped high paid executives appeal and win company and privately owned long term disability benefits.
Call me. I don’t sell insurance but I can tell you what you should consider.
