agencies, the services receive a commission if you buy a policy from them, but you’re under no obligation to do so.To get a quote, these services ask you your date of birth, whether you smoke, some basic health questions, and how much coverage you want. Services that are worth considering include the following:AccuQuote: www.accuquote.com; 800-442-9899ReliaQuote: www.reliaquote.com; 800-940-3002Term4Sale: www.term4sale.com; 888-798-3488USAA: www.usaa.com; 800-531-8722 (this company sells low-cost term life insurance directly to the public; some of its other insurance products are only available to members of the military and their families)
Protecting Your Employment Income: Disability Insurance
Long-term disability (LTD) insurance replaces a portion of your lost income in the event that a disability prevents you from working either permanently or temporarily for an extended period of time. For example, you may be in an accident or develop a medical condition that keeps you from working for six months or longer. During your working years, your future income earning ability is likely your most valuable asset — far more valuable than a car or even your home. Your ability to produce income should be protected or insured.
The following sections detail why you should have disability insurance and help you determine the type of coverage you need to protect your income.
Why most people lack disability insurance and why you need it
Most folks lack long-term disability insurance. The two main reasons people don’t obtain this important type of insurance are as follows:
Their company doesn’t offer it. Just three in ten workers are offered access to an LTD plan. Only 19 percent of those working for smaller employers — those employers with fewer than 100 employees — have access to an LTD plan. And just 6 percent of part-time workers have access to LTD insurance.
They don’t enroll. Even among those in the minority who have access to LTD, many people don’t enroll. A common reason folks bypass coverage is that they believe their chances of disability are rare. Another perception is that only old people become disabled. Both of these perceptions are wrong.
Life is uncertain. You can’t know when and what type of disability you may suffer. That’s because many disabilities are caused by medical problems (arthritis, cerebral palsy, diabetes, glaucoma, multiple sclerosis, muscular dystrophy, stroke, and so on) and accidents (head injuries, spinal injury, loss of limb, and so on). Although older folks are at greater risk for more severe medical problems, plenty of younger adults suffer accidents or major medical problems leading to disability.
Many applicants for Social Security disability benefits coverage are turned down. You can receive payments only if your disability will result in death or if you aren’t able to perform any substantial, gainful activity for more than a year. Recent studies show that only about 35 percent of applicants for Social Security disability benefits are approved.
Even if you do qualify, your state’s disability plan and Social Security insurance programs probably won’t provide you with sufficient coverage, especially if you’re a higher income earner. State programs typically only pay benefits for one year or less, which isn’t going to cut it if you truly suffer a long-term disability that lasts for years. While one year of coverage is better than none, the premiums for such short-term coverage often are higher per dollar of benefit than through the best private insurer programs.Similarly, although Social Security disability benefits can be paid long term, remember that these payments are only intended to provide for basic subsistence living expenses. Those earning more than $40,000 per year find that less than half of their income is replaced by Social Security disability payments. As Table 2-2 shows, the higher your income, the smaller the portion of your income will be replaced by Social Security disability.
Worker’s compensation, if you have coverage through your employer, won’t pay benefits at all if you get injured or become sick away from your job. Such narrow coverage that only pays benefits under a limited set of circumstances isn’t the comprehensive disability insurance you need.
TABLE 2-2 The Portion of Your Income Being Replaced by Social Security Disability Benefits
| Annual Income | Social Security Disability Annual Benefit | Percent of Income Replaced by Social Security Disability |
|---|---|---|
| $20,000 | $13,080 | 65% |
| $30,000 | $16,280 | 54% |
| $40,000 | $19,480 | 49% |
| $50,000 | $22,680 | 45% |
| $75,000 | $29,730 | 40% |
| $100,000 | $33,480 | 33% |
| $150,000 | $36,130 | 24% |
| $200,000 | $36,130 | 18% |
| $400,000 | $36,130 | 9% |
Identifying needed disability coverage
Unless you’re already financially independent, you need long-term disability insurance during your working years. Generally speaking, you should have LTD coverage that provides a benefit of approximately 60 percent of your gross income. Because disability benefits payments are tax-free if you pay the premium for disability insurance you buy, they should replace your current after-tax earnings.
An “own occupation” definition of disability: This definition allows you to collect benefits if you can’t perform your regular occupation. For example, if you work as an accountant, your disability