Advisor strategy long term disability insuring the goose lays the golden egg cover

Advisor Strategy: Long Term Disability Insuring The Goose Lays The Golden Egg


Why should I consider disability insurance coverage? Doesn’t Social Security pay for that?


People insure their assets against loss; yet fail to buy insurance for their most important asset – their ability to earn an income. A sudden illness or injury without disability income insurance could be devastating for your life and your business, especially if there are no employees who can do what you do. What would happen to your business if you suffered a stroke or an accident and were paralyzed for six months or a year?

When you become sick or disabled, your personal and business obligations do not stop. You are still liable for all of the debts of your business. You could lose everything you own, everything you have worked so hard to create. Before you say that it could never happen to you, consider the hard facts: Your chances of being disabled are much greater than your chances of dying. According to the Disability Management Sourcebook, severe disabilities have increased 400% over the past 25 years between the ages of 17 and 44. Before age 65, one in seven people will become disabled for five years or more.

Disability insurance will replace your income in the event of an accident or illness. You need to take the subject of disability insurance very seriously. The right disability policy can provide you with enough cash to prevent disaster for you and your business.

Whether you need a private disability policy depends on the extent of your liquid assets, your spouse’s income and other sources of disability income (group coverage, workers’ compensation and Social Security). If these combined resources would provide less than 80% of your monthly expenses including taxes and savings, you may require additional disability insurance coverage.

Most people mistakenly believe that Social Security provides disability benefits: This is a half-truth. Social Security’s definition of disability is so stringent that fewer than 1 in 12 applicants receive benefits.

A United States Supreme Court ruling affirmed the right of the Social Security Administration to deny disability income claims, using SSA’s definition of disability, DWA (Daily Work Activities): “Daily Work Activities” were defined as “standing, walking, sitting, lifting, pushing, pulling, reaching, carrying, understanding, and carrying out and remembering simple instructions.” (Note – only one activity was left out – “lying down.” Does that mean that one has to be flat on one’s back to collect?)

(What the SSA is saying is that they are not in the disability insurance business. They never intended to be; it only happened by accident. Anyone who relies on Social Security Disability is “living in a forest with no trees.”)

Depending on your income, the maximum coverage you can buy will replace 45% to 75% of your predisability earnings. The higher your income, the lower the percentage of earnings benefit. Cost depends on the risk level of your occupation, your age and the comprehensiveness of coverage. It should also be noted that when you pay the premiums, the income from personal disability policies is tax-free.

How much coverage do you need? In general, insurance experts recommend that disability insurance equal 60% to 70% of your before-tax earnings, with benefits starting 90 days after you become disabled (your savings presumably can carry you until then) and continuing if necessary until you reach age 65.

To make certain the money you spend on disability insurance is buying top-notch protection; your contract should include the following:
• A Favorable Definition of Disability: A desirable definition would be “the inability to perform the duties of your own occupation.”
• A Non-Cancelable Clause: The insurance company cannot cancel the policy or increase the premium.
• Partial Disability Payments: If you go back to work at a fraction of your former salary, the policy will pay benefits in proportion to your loss of earnings.
• Benefits payable until age 65, or for life.

Many companies also have residual payment provisions, which in effect allow you to go back to work in any occupation, but pay a percentage of lost income based on how much you earn while disabled.
When you consider that your ability to work represents the most valuable asset you possess, protecting that asset is vital to your financial security.

Mostly, I can assure you that anyone who has ever received a claim for disability insurance will attest: There is not a more important form of insurance you can own! !


Scott Zimmerman

Corporate Strategies
16255 Ventura Blvd #320
Encino, CA 91436
Office: (818) 377-7270
Cell: (818) 481-9342