Not Owning DI Is!
by Bill Olmsted
I frequently get calls from people looking for an individual disability insurance policy to protect their income in their own occupation. In the course of conversation, we discuss the monthly benefit that they can qualify for, the features of the policy that are right for them, and finally the cost. It’s at this point that some people lose interest. People typically don’t expect disability insurance to cost 3%-5% of their income. But why not? They’re used to paying a few hundred dollars per year on their term life insurance, and they can’t see why they should pay $2,000 - $3,000 per year on a disability insurance policy. I frequently hear that they “never plan on using this coverage”. It’s easy to point out that no one who’s ever used their disability policy ever planned on it.
If you find yourself having “sticker shock” when shopping for disability coverage, put yourself in this situation:
You’re deciding between two similar jobs. One pays $100,000 and if you get sick or hurt, you get nothing. The other pays $97,000 and if you get sick or hurt, you get $60,000 per year tax free until you come back to work at your job, or until you’re 65. Which job would you want after learning about the possibility of being disabled?
I’ve never had anyone pick the first job. When presented in this way, people see the value in having a disability policy. Another situation I see frequently is someone deciding between two policies. One of which is significantly less expensive than the other.
Let’s say that you have a choice between the
following two policies:
• Policy A provides a benefit if you become disabled due to sickness or injury, and cannot work in your own occupation. It has a benefit provision for partial disabilities and contains a rider to enable you to increase your coverage in the future with no further evidence of good health 1. Additionally, it contains a cost of living adjustment factor to help benefits keep up with inflation should you become totally disabled and remain so for some length of time.
• Policy B costs much less than policy A, but only pays a benefit if you’re totally disabled, and only if you cannot perform any occupation.
Which one is the better value? Well, if you are not one of the people who may eventually become disabled, then you’re better off with the less expensive policy. On the other hand, is that a chance you want to take?
Most people would say that their income is the most valuable asset that they have. A 35 year old professional making $100,000 per year has an income worth $3,000,000 if they work to age 65 and never have a pay increase. How many of us wouldn’t insure something worth $3,000,000? We insure our cars, homes, boats, and personal property. Why don’t we all insure our incomes with the best possible coverage? We simply can’t afford not to.
1. The amount of coverage available through a Future Increase Option ("FIO") rider is subject to financial underwriting requirements. Consult the FIO rider for complete details.
William Olmsted holds a Financial Representative contract with The Guardian Life Insurance Company of America based out of New York, NY.