As many of you are probably going through the annual ritual of writing out your New Year’s resolutions, you might be taking a fresh look at one you may have previously put on your annual lists -  stop procrastinating. There are many reasons in life to change this behavior, but I’m mentioning it here in a disability insurance blog because I have watched many clients “put off to later what they could do today.”

What is the cost of procrastinating? The most obvious cost is financial. Premiums on new disability policies are higher as you become older. The longer you wait the higher the cost of the new policy.

The major cost of waiting I have seen occurs when someone who is considering a disability insurance policy has a change of health while waiting. At the least, the cost of the policy would increase and/or the illness or injury would be excluded from the policy. However, the worst case scenario occurs when the illness or injury leads to a permanent disability, affecting the person’s ability to earn an income. Without disability insurance, financial ruin often follows.

So go ahead and include “stop procrastinating” on your list, but this time, don’t wait to stop as the costs are too high.

Happy New Year

Wishing everyone a
Merry Christmas from
protectyourincome.com

Clients often tell me they don’t need disability insurance because they are not accident-prone. However, it may surprise you that only 14% of disability insurance claims are caused by injuries. Most are caused by illness. The ratio of claims due to illness is six times more likely to come from illness.

Here are some recent claims filed with a major insurance carrier:

• 2 Lumbar Laminectomies
• Acute Myocardial Infarction
• Alzheimer’s Disease
• Angina Pectoris, Coronary Artery Disease
• Anxiety Disorder, Depression
• Brain Tumor
• Cancer of Lung
• Carcinoma Lung
• Cerebral Aneurysm
• Cervical and Lumbar Back Sprain
• Coronary Artery Disease
• Crohn’s Disease
• Degenerative Arthritis Both Hands
• Degenerative Disc Disease
• Diabetic Neuropathy, Lower Extremities
• Left Brachial Plexus Compression Syndrome
• Lou Gehrig’s Disease (ALS)
• Lumbar Disc Disease Right Laminectomy
• Lumbar Nerve Root Irritation
• Multiple Sclerosis
• Multiple Trauma
• Myocardial Infarction, Coronary Artery Disease
• Neuropathy, Collagen Disease
• Obstructed Right Lateral Ventricle, Seizures
• Pancreatitis, Neuropathy, Diabetes, Angina
• Parkinson’s Disease
• Post Traumatic Stress Disorder
• Severe Coronary Artery Disease
• Severe Headaches, Anxiety
• Thoracic Outlet Syndrome
• Uncontrolled Diabetes

Myth # – The Government Would Pay Me

In this entry, I continue my exploration of the Five Myths about Disability Insurance discussed in an article I found in A.M. Best’s Consumer Insurance Center. This is the fifth and final entry of this series.

This is probably the biggest misconception we hear about disability insurance. Unfortunately, if you are depending on the government to provide you with benefits while you are disabled, you will be in for a rude awakening. According the article in the A.M. Best’s Consumer Insurance Center, only 39% of disabled workers who applied for Social Security Disability Income payments were approved in 2005. Even when they were approved, the average monthly benefit in 2007 was just $978. Adding insult to injury, it can take months to receive benefits.

According to an article in USA Today the Social Security Administration faces a record, and rapidly growing backlog of appeals by people who claim they are too disabled to work. Through June, it had just over 745,000 cases pending, and the wait for a hearing averaged 17 months, also a record.

Proper disability protection typically requires individual disability insurance. With some disability policies, you can reduce your premiums by offsetting potential benefits with those paid by Social Security or State Disability.

To recap, the Five Myths about Disability Insurance are:

Myth #1 – I’m Healthy and won’t be disabled
Myth #2 – Your Home is your Biggest Asset
Myth #3 – Worker’s Comp Would Pay Me
Myth #4 – My Employer Would Pay Me
Myth #5 – The Government Would Pay Me

Myth #4 – My Employer Would Pay Me

In this entry, I continue my exploration of the Five Myths about Disability Insurance discussed in an article I found in A.M Best’s Consumer Insurance Center.

Many employees expect that their employers would pay them if, due to illness or injury, they were not able to work. However, only five states (California, Hawaii, New Jersey, New York and Rhode Island) require employers to provide short term disability insurance through payroll deductions. At best, short term disability would only cover a percentage of income for six months. There are no states that require employers to provide long term insurance to their employees.

As a matter of fact, most employers (70%) don’t offer group long term disability insurance to their employees and, if they do, benefits are typically 40-60% of the employee’s income. To make matters worse, the benefits are typically subject to income tax (if the employer pays the insurance premiums).

If you are part of a group disability policy, you’re at risk of losing the coverage if you were to become disabled for a period of time. The major downside of having group disability insurance is that if you are disabled for three to six months, your employer is not required by law to hold your position open for you. If your employer needs to fill your position and lets you go, you would lose your group benefits, including your long term disability insurance.

Proper disability protection typically requires individual disability insurance. Quite often you can supplement your group coverage with an individual plan. Some companies offer provisions to increase the coverage in your individual plan (without proof of medical insurability) if, due to changing jobs, you lose your group plan.

Myth #3 – Workers Comp Would Pay Me

If you are injured on your job, workers compensation insurance would cover your medical bills and a portion of your lost income. Most states require employers to purchase workers comp to cover such instances. However, as only 10% of disabilities are work-related, if you become disabled outside of work, you will not be covered.

A group or individual disability insurance policy typically covers approximately 60% of your income if, due to illness or injury, you are not able to perform the usual and customary duties of your occupation. For example, if you are injured while skiing and couldn’t work, you would not be covered under your workers comp policy, but you would be covered by an individual disability policy.

If you don’t have long term disability insurance, your income is at risk. Protect it with a good individual disability policy.

Myth #2 – Your home is your biggest asset

What is your biggest asset? The majority of people I speak with tell me their home is definitely their biggest asset, by far (I live in California, so I can understand this viewpoint). According to an article in A.M. Best’s Consumer Insurance Center, approximately 96% of homeowners have homeowners insurance (source: 2006 Insurance Research Council Poll). How much is this asset worth – $200,000, $500,000, $1,000,000 or more? Certainly, this is a large asset, but the largest?

Your largest asset is, in fact, your ability to earn an income. Without your income, you would most probably have a difficult time holding onto your other assets -  your home, your savings, cars, etc. How large is this asset? Let’s take a look at a 35 year old physician earning $200,000 annually. If she were to become permanently disabled at age 35, she would lose out on approximately 30 years of income (based on a retirement age of 65). Even without factoring in inflation, her loss of income would be about $6,000,000. Her total loss would be compounded if she were to dip into savings, retirement accounts, cash-value insurance policies, etc.

Because of this myth, 96% of Americans protect their homes with homeowner’s insurance, yet only approximately 30% of Americans protect their incomes with long term disability insurance (according to the Social Security Administration). Why don’t a larger percentage of people purchase this type of insurance? This myth is one of the reasons. Most people don’t calculate what their lifetime earnings might be.

In the next three entries, I will present the other myths that keep people from protecting their most valuable asset -  their ability to earn an income.

In speaking to clients and prospective clients on a daily basis, I often hear the same reasons why people feel they don’t need disability insurance. I read an article today at A.M Best’s Consumer Insurance Center titled Five Myths about Disability Insurance and found these myths mirrored the reasons people tell me they don’t need the coverage. As I would like to fully explore each myth presented in the article, I will cover one per blog entry.

Myth #1 – I’m Healthy and won’t be disabled

According to a recent study, most people estimate they have only a 6% chance of becoming disabled during their working years yet; every statistic I have ever seen on the subject tells me the chance of becoming disabled is much greater than people suspect. Here are a few statistics:

• If you’re under age 35, chances are one in three that you will be disabled for at least six months during the course of your career.
• Men have a 43% chance of becoming seriously disabled during their working years.
• Women have a 54% chance.
• At age 42, it is four times more likely that you will become seriously disabled than that you will die during your working years.

Sources:
1. Gallup survey, conducted for UNUM Corporation (508 respondents, aged 30 to 65), reported by Best’s Review.
2. “Why Disability” booklet, published by National Underwriter.

For more statistics, visit http://www.protectyourincome.com