Disability Insurance

Disability Insurance

The Nightmare scenario: Rates are zooming, but you can’t afford not have a policy

Here’s a frightening fact: Insurance companies report that if a disability keeps you out of work more than 90 days, you’re not likely to work again for about three years.

The usual source of long-term disability coverage is your employer. But if you ever need it, this coverage will probably not be sufficient. For starters, only 60 percent of your present earnings are covered. Disability insurance payments paid under your employer’s policy are taxable. Pension and retirement funds, bonuses, overtime, or special pay may not be covered by your group disability plan.

An individual disability insurance policy is a good idea but it will cost you – especially now. Disability insurers chalked up huge losses in 1992 and 1993 in part because their policies didn’t charge enough to cover the benefits offered. As a result, some big insurers are scaling back policies and raising prices. Disability policies used to be non-cancelable – meaning if you pay your premiums, the insurer must continue covering you without lowering benefits or raising premiums. No longer. It will also be tougher to find a policy with an “own occupation” rider, which provides benefits if you can’t work in your chosen occupation. In early 1990s, Provident Life &Accident, the nation’s second largest individual disability insurer, stopped offering non-cancelable, own-occupation policies in many states. Other insurers are doing the same, or charging up to 20 percent more.

Hard times. Sketch by Elena

Women are likely to pay more than men. Insurance companies have discovered that women are more likely than men to claim disability benefits.

Therefore, women are higher risks and premiums will also depend on your profession. Ministers and editors are higher risks than lawyers, architects, corporate executives, and accountants.

Disability policies consider all forms of income in figuring how much of a benefit you’ll receive in case of a mishap. The policies are portable, so you’ll still be insured should you change jobs. Premiums don’t increase. You can’t find policies that you can carry for the rest of your life.

If you’re self-employed or a so-called fee-for-service provider – insurance jargon for a doctor, lawyer, etc. – you should look for a policy with recovery benefits. Recovery benefits will supplement your income while you build up your client base after a log absence. Recovery benefits kick in when your’re back working full-time.

You’ll also need residual benefits to cover you while you’re working part-time. Doctors, lawyers, and other self-employed individuals, especially, will also want their policy to include “own-occupation benefits.”

The High Cost of Disability Insurance

The annual cost of a non-cancelable individual disability income policy for a 40-year-old nonsmoker earning $60,000 to replace 60 percent of lost income to age 65:

Top-of-the-line professional coverage (includes own-occupation and residual benefits):

Architect, attorney, CPA, corp. Exec (corporate executive receiving this rate must be in firm of 25 or mor and have office or consulting duties only). Female – $1,882, Male $1,376, Multi-life – $1,021.

Actuary, pharmacist, optometrist Female – @2,042, Male – $1,492, multi-life $1,218.

Multi-life policies are individual plans purchased by groups in a corporate or association setting.

Source: Paul Revere Life Insurance Company, Worcester, Mass.

(historical values, 1995)