Will Bachman 00:01
listener emailed me asking my thoughts on whether it makes sense for independent professionals to purchase disability insurance. Hey, welcome to Unleashed. I’m your host Will Bachman. So Disability Insurance is not a topic I’ve covered in depth before on the on the show. And I ought to do a longer episode and I should interview a real expert on the topic. But I wanted to get back to that listeners question quickly. So today, I wanted to share what I know about to respond to this listeners question. So I was totally ignorant about disability insurance before I got a policy a few years ago. So I’m going to be sharing this episode based on that experience as well as a little quick internet research I just did. So first. First question is like what are the odds that you’ll get disabled and actually need a policy? So it’s not a easy question to answer. You may see some figures online that are super scary high. For example, the article in Wikipedia on Disability Insurance says that one out of every four persons in the US workforce will suffer a disabling injury before retirement. Now, I don’t think that actually 25% of working age adults are disabled. That number sounds pretty scary. But when you look at the reference from Wikipedia, it’s an infographic produced by disability insurance.org. I’m sure they’re not impartial at all, impartial at all. So I include a link in the show notes to New York Times article that looks into these estimates of what percentage of people will have a disabling injury that prevents them from working at their own job. And the range of numbers that you see, you know, is all over the place from above 50%, from insurance agents to somewhere in the single digits. So I don’t know the truth. But so if you’re wondering whether it’s worth the money to get a policy at all, you might consider what dirty, dirty Harry said. You’ve got to ask yourself one question, do I feel lucky. So I do feel pretty lucky. But I also did not want to put my family in the position of having me alive, but disabled, and having us unable to make ends meet. So I did go ahead and get a policy. Now there’s two main categories. There’s Short Term Disability Insurance, and Long Term Disability Insurance. Short Term Disability insurance pays benefits from when you get from the time you get disabled, but very short period, no surprise, the policies I looked at went from the time you get disabled up to six months. For me, the economics on those policies could not be justified, the benefits were pretty low. And the cost of the premiums were pretty high. such that, you know, if I had just paid the premiums into savings for a few years, I would have paid enough to pay for those six months of benefits. So it just made more money to put the premium into a savings account. In case I in case I you know get this stabled in for a short period of time, I did get a long term disability policy. And I would strongly recommend to every independent professional that you get one as well, unless perhaps you have, you know so much in savings that you could stop working now and just live on your savings for the rest of your life. So the website policy genius.com has a good summary of the various considerations when shopping for long term disability policy. And I’ll include a link to that page in the show notes. And I’m basing some of the rest of this content on what I found on that site as well as my own experience. So the considerations when you look at a policy, I’m going to list six, as the number one is the coverage amount. That’s how much the insurer is going to pay you every month if you get disabled. This is also known somewhat confusingly, to me as the participation rate. These payments are not taxable if you are paying for the policy yourself. So if you you know, for every $100 you earn, you’d only need coverage for about $60 to have the same after tax cash available. So keep that in mind. If you do want to fully replace your current earnings, like I said, you need to get a policy for to 60% of your current income. And if you can get by with less than that, well, your policy premiums will be lower. And I’m not positive but I think it’s roughly roughly linear. So if you reduce your desired participation rate by half, I think roughly your your premiums should go down by about half. Number two is waiting period. That’s how long you need to wait until you get disabled for the benefits to kick in after you get disabled you To go through the waiting period, and then your benefits kick in. So the longer the waiting period, lower the premium, okay? So if you have the savings to afford a longer period, you might want to pick a longer period. I think a typical periods could be anywhere 30 days, two months, three months, six months a year. Number three is benefit period. That’s how long you’re going to receive the benefits, you can typically get policies with two years of benefits five years or until retirement. And if you can afford it, go for the policy that lasts until retirement because it would be a real bummer to get disabled and have your long term policy run out after two years or five years if you still need it. Number four is non cancelable. The insurer is not allowed to change or cancel your policy. And that sounds like a pretty good idea to get that option. That would definitely be a bummer to have your insurance company cancel your insurance, when you’ve been paying it for it for all those years. Number five is own occupation. This means that the policy will pay out if you can’t work in your own occupation. So for example, a surgeon classic example who got a hand injury and can’t be a surgeon anymore, would still be would be able to collect the coverage amount each month the participation rate, even if that surgeon could still earn a living or make money teaching biology to college students, right, because if the surgeon has a hand injury, they can still teach but they can’t do their own occupation. The other version is any occupation disability insurance. for that type, you need to be unable to work at any occupation, in order to get benefits, that’s obviously a lot harder to prove. So the chances that you’ll get benefits are lower, and means the premiums are lower as well. And number six are exclusions. Those are things that the policy won’t cover. So if you have some kind of pre existing condition. So what is the cost of long term disability insurance policy genius, and they ought to know, says you should expect to pay about one to 3% of your annual salary. And it’s going to vary depending on a lot of different factors. Depending on you know, your coverage amount, your age, your gender, your smoking history, what state you live in your occupational class, and as well as all those policy factors we discussed above. So how do you go about getting Long Term Disability Insurance. So first thing I’ll say is it is a hassle. And the whole process is going to take you four to six weeks probably. And that deters a lot of people, unfortunately, because this is something that is worth doing. So the first thing to start the processes, obviously, you going to go online and start comparing quotes policygenius as a tool to do that, and there’s other some some comparison type sites. So get some quotes, you can get that from also from an independent agent who will go off and research the quotes for you, you probably ought to take the rating of the insurance company into consideration. You don’t want to sign up for a long term disability policy. And then you don’t need it 15 years from now, and the company is bankrupt. So I played it safe and went with a company that has an A plus plus rating from am best, then you are going to fill out an application. And you’ll have to show proof of income and sign an authorization form so your health information can get released. I think you have to show proof of income because they don’t want somebody to get a disability policy that provides more than they currently earn, then you’d have a strong incentive to stop working. So your current income will go into a calculation that leads to the max amount of coverage the company will offer you, I’m pretty sure that you could choose to get less coverage than that maximum at a at a lower premium. And then you’re going to take a medical exam. And that’s kind of cool. In my case, I assume this is the way they normally do it. They sent a nurse to my house to take a blood sample right in my living room and do an exam right at my house. And then I got interviewed. And the company then takes two to four weeks to process everything and to give approval on the policy they quoted upfront. And then of course, you have to go move forward and sign the policy and start paying the premiums. So the earlier you get started on doing this in life, the better you’ll get a lower premium, the healthier you are. And so if you’re healthy now it’s a perfect time to shop for a policy don’t wait, you know until you till you get sick. So, again, I encourage you to do this, you know protect your family. It’s you know, good peace of mind. That’s it for this episode. If you’ve got any advice to add to this about disability insurance things that I missed, please do. Let We know you can email me at firstname.lastname@example.org. And if you go to ask unleashed.com you can record a question for me to answer on the show, and I will do my best to answer it on a future episode. You can also find transcripts of past episodes and you can sign up for the weekly Unleashed email that I send out. That includes bonus features book recommendations, short summary of each week’s episode. So sign up. Thanks for listening.