Long Term DisabilityStatisticsThe Air Bag Phenomenon Odds of Death/LT Disability Prior to Age 65 Source: www.ricedelman.com It Won’t Happen to Me! Are you Sure?Yes, disability insurance is expensive–2-3% of taxable income-- it’s logicalQuestions to Ponder Analyzing a PolicyHow Much Coverage Do You Need?Benefit Period: Length of CoverageTotal Disability vs. Residual DisabilityChoosing the Waiting PeriodNoncancelable & Guaranteed RenewableFuture Purchase OptionGroup Disability InsuranceNote Information in this presentation is derived from Insurance for Dummies by Jack Hungelmann.I highly recommend this book.Before age 65, you are three times more likely to become disabled for six months or more than dieOdds of suffering a disability that lasts 90 days or more before the age of 65: 1 in 8Source: www.ricedelman.comSomeone age 45, has a 1 in 4 chance of suffering a long-term disability before age 65Source: www.ricedelman.comAge Death Long Term Disability25 24.1% 34.8%30 23.5% 33.1%35 22.8% 31.3%40 21.8% 29.1%45 20.4% 26.3%50 18.3% 22.6%55 14.9% 17.6%60 9.3% 10.6%Review the prior statisticsSevere Example from www.ricedelman.comSay, a 35 year old is disabled and collects $2,000 per month for 30 years.The Insurance company would pay out $720,000 over timeWhat percentage of income is paid? usually 60-80 percentWhat is the benefit period/length of coverage? e.g., to 65, five yearsWhat is the definition of disability? “any occupation” vs. “own occupation”Total Disability vs. Residual Disability?(discussed later)What is the elimination or waiting period? (discussed later)Is the policy “noncancelable”? Is the policy “guaranteed renewable”? (discussed later)What steps are required to prove you are unable to work?Is there a “cost-of-living” rider?Is there a future purchase option?Living ExpensesPLUSAdd 10-20% because expenses may increase when you have a disability________________________________________Note 1: Insurance companies often limit coverage to 80-90% of take-home pay.Note 2: Social security disability is difficult to qualify for, so ignore it in your planning.Typically 2, 5, to age 65, or rest of your lifeConsiderationsMany disabled people recover within 5 yearsRisk if you are one of the unlucky individuals who have a lifetime disabilityYour other resourcesTotal Disability: policy only covers you if you cannot work at all– so, if you can work a few hours a week, your disability insurance would not “kick in”.Residual Disability (recommended): receive proportional coverage if you are unable to work full-timeTypical choices: 30, 60, 90, or 180 daysConsiderationsEmployer package regarding sick days and so forthYour safety net– how much savings do you have?Noncancelable: cannot raise the premium to age 65Guaranteed Renewable: can raise the premium, but cannot single you out based on your personal situationProvides the opportunity to purchase additional insurance in the future regardless of your health– no physical exam or application requiredUsually no cost of living increaseMany cover only total disabilities, not partial or residual benefitsGroup benefits are
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