Here are some of the items that we have talked about over the last few weeks: your Automobile Insurance Agent, Homeowner's Insurance Agent, and Liability Insurance Agent. We even spent some time talking about your Crazy Cousin Carl – the guy who thinks he knows everything! Today we’re going to be discussing your Disability Insurance Agent.
Why is disability an important thing to discuss? The hard truth is that without money, nothing else happens. If you are 35-years old and are making $75,000 a year, you will have over $2 million go through your fingers between now and age 65. If you change jobs and get regular 3% pay raises either from promotions or inflation, you will have had $3.5 million go through your hands between now and age 65! If you become disabled, that income disappears.
What do we do? You could try to rely on Social Security, but I would invite you to review your most recent statement from the Social Security Administration. You will find an amount that you would receive for disability benefits. However, you would be hard-pressed to live on that income. If you work for a municipality or a school district, you probably have a very nice disability employer plan that covers up to 90% of your pre-disability income. But, if you are just a regular person who works on the line or in a business office and you become disabled, your plan will likely only provide up to 60% of what your gross pay was prior to a disability. Those ‘fringe’ benefits really seem like they are on the ‘fringe’ when you need them. Also, those benefits are usually taxable in most situations I have seen with companies across the United States.
Yet, it can get worse. Not only are those benefits usually taxable, but a group plan like this typically is integrated with Social Security. Not all employer plans are the same, but ‘integration’ means that if you become disabled, your current employer’s plan will require you to apply for Social Security disability benefits. Let’s make up a number. Say that your benefits through your employer will pay you $3,000 per month. If Social Security pays $1,000 a month, the $1,000 is deducted from the $3,000. So, you’re not going to get $4,000 in total because the $1,000 from Social Security is deducted from the $3,000 you may receive from your employer’s plan. The total income from both sources that you end up with is only $3,000.
Here’s the reason why a person may wish to have a disability insurance agent as part of their overall plan: The insurance company that provides disability insurance policies will look at what your human life value is today and project your future with job changes and increases in pay. You can potentially insure your future income of 5, 10, 15, 20, 25, 30 years from now. So, whether you are going to have $2 million go through your hands or $3.5 million during your working lifetime, how much of that income do you want to continue to get, if you’re no longer able to work due to a disability, due to sickness, due to an accident? How are you going to continue to live the life that you have become accustomed to?
