When do you reduce or stop disability insurance coverage

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jocdoc
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When do you reduce or stop disability insurance coverage

Postby jocdoc » Sun Jun 18, 2017 11:27 am

I am almost 63 yrs old and plan retirement next five to ten years, one child still in college for three more years, have enough to retire including three years of my son's college, no LTC insurance (too expensive - prexisting medical problem) and will be eligible for reduced SS benefits in a few months. Health is reasonable. The cost of the insurance is reasonable and not an issue. What factors do I need to consider to reduce or eliminate DI insurance.

I would like the thread to be a more general discussion on what factors to consider to stop or reduce DI rather than my circumstances. Thanks in advance for your inputs.
JC

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ruralavalon
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Re: When do you reduce or stop disability insurance coverage

Postby ruralavalon » Sun Jun 18, 2017 11:53 am

I had a stroke at age 49, and was not able to return to work full-time for about one year. I stopped my disability insurance in my early 60s, when I came to the decision that if I became disabled again I would just call it early retirement.
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celia
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Re: When do you reduce or stop disability insurance coverage

Postby celia » Sun Jun 18, 2017 11:56 am

Disability Insurance protects your salary. http://www.insurance.com/disability.aspx

The intent is to keep some of your salary coming in, even though your expenses may increase after you are disabled. You cannot collect more than your salary (else you have an incentive to become disabled).

Long Term Care Insurance, on the other hand, is meant to cover the care you need. It is not just for the aged but also covers you while working. Some companies offer it to their employees. My last employer paid the premiums for a base amount (based on your salary) but the employees could "upgrade" it for the benefits to be higher, to last longer, or include an optional cost of living increase. I continued mine after I left the company and turned it into an individual policy. Even though it likely won't cover all my care expenses in a nursing home, should I eventually need it, it will help pay a part of the costs.

OP, why not check to see if your employer carries LTCI and if all employees are automatically eligible (without health screening).

ofckrupke
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Re: When do you reduce or stop disability insurance coverage

Postby ofckrupke » Sun Jun 18, 2017 1:53 pm

From what you write, DI has for you has shifted from necessary to discretionary.
But then, from what you write, so has employment.
If you are working for discretionary financial objectives (that is, apart from pleasure in your work, or boredom prevention), then what the DI insures is some level of achievement for these objectives, which might include added luxury in retirement, or accumulation for legacy objectives.
It might go against the grain here, but if those objectives are decisive for continuing to work, and your sense is that the cost of the insurance is low, then it is probably worth retaining - even though from what you wrote, you can afford to lose the income.

Because the product has become discretionary, consideration of individual circumstance is unavoidable. Discretion is circumstantial.

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House Blend
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Re: When do you reduce or stop disability insurance coverage

Postby House Blend » Sun Jun 18, 2017 2:19 pm

jocdoc wrote:The cost of the insurance is reasonable and not an issue. What factors do I need to consider to reduce or eliminate DI insurance.

I would like the thread to be a more general discussion on what factors to consider to stop or reduce DI rather than my circumstances.

I'm sure there's a wide range of coverage and costs for LTDI (Long Term Disability Insurance). I doubt that there will be magic formulas that tell you what to do.

If you want something to compare with, I can describe the group LTDI coverage available through my University employer. (Your handle makes it sounds like you do Sports Med. For doctors in our Med school, the options are different.)

If I get (totally) disabled at any age up to 61.99, it provides benefits (and AFAIR replaces 65% of salary) through to age 65. If I become disabled after age 62, then the duration of the benefit slowly tapers off and bottoms out at 1 year of coverage. So if I am still working full time at age 70, and become totally disabled, it provides 12 months of 65% salary replacement.

For us, the cost of coverage is not age dependent. It is strictly a function of salary:
0.62% x (salary - $60K). It is a free lunch for folks earning less than $60K.

Back to your question, suppose my salary is $200K, and I plan to work only one more year, my 61st. Under my employer's plan, I can pay $868 for an LTDI lottery ticket that would pay $520,000 in gross Federally taxable wages over 4 years should I become disabled in that 61st year. If I become disabled the day after retirement, the lottery ticket pays zilch.

Is that worth it? For many, probably yes. For everyone? Maybe not. I think it will depend on how substantial your assets are, and if you are working only because you enjoy it, and not because you need the extra financial cushion.

ralph124cf
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Re: When do you reduce or stop disability insurance coverage

Postby ralph124cf » Sun Jun 18, 2017 4:50 pm

If you pay for disability insurance, the benefits are tax free.

If the employer pays the premiums, the benefits are taxable.

I am not sure how this works if both are paying part of the premiums.

Ralph

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Kenkat
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Re: When do you reduce or stop disability insurance coverage

Postby Kenkat » Sun Jun 18, 2017 5:23 pm

I think that the primary measure is this: if you suddenly lost your job tomorrow, what would you do? If you would need to find another job to make ends meet, you probably should keep the policy. If instead as others have said you'd just call it quits and retire, you could most likely let it lapse.

jlcnuke
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Re: When do you reduce or stop disability insurance coverage

Postby jlcnuke » Mon Jun 19, 2017 7:08 am

IMO, anyone who is financially independent does not require disability insurance. For everyone else, long-term disability insurance is a must and short-term disability insurance is a must unless they have another option to cover the short-term loss of income (i.e. sufficient emergency funds).

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High Income Parent
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Re: When do you reduce or stop disability insurance coverage

Postby High Income Parent » Mon Jun 19, 2017 7:50 am

I think it is pretty easy to figure out when to stop disability insurance.

If you are okay living on the money/investments you have saved then discontinue it.

If you aren't, then keep it going.

Another thing to consider is if your disability insurance coverage runs out at 65 and you are nearing that age, is the shorter time period worth the cost of the premiums at that point. You could look at it as a return on investment.
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mrc
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Re: When do you reduce or stop disability insurance coverage

Postby mrc » Mon Jun 19, 2017 8:05 am

As others have mentioned: We cancelled one policy when wife turned 64 and could retired, but didn't (only one more year of coverage). We cancelled mine when I stopped working at 58. It was insurance on income between now and retirement age. She's there, and I'm retiring — we don't need insurance to replace my income.
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Watty
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Re: When do you reduce or stop disability insurance coverage

Postby Watty » Mon Jun 19, 2017 8:21 am

jocdoc wrote:What factors do I need to consider to reduce or eliminate DI insurance.


You need to look at how long the disability payments will continue. Many policies(if not most) will only pay until you are 65. If a 63 year old is disabled they may only get two years of payments which might not be a life changing amount.

One other factor that I have not seen mentioned is that if you are disabled then your other expenses may be much higher not only for your medical care that insurance does not cover but also to do things like house and yard work that you would have normally done.

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gasdoc
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Re: When do you reduce or stop disability insurance coverage

Postby gasdoc » Mon Jun 19, 2017 9:44 am

Watty wrote:
jocdoc wrote:What factors do I need to consider to reduce or eliminate DI insurance.


You need to look at how long the disability payments will continue. Many policies(if not most) will only pay until you are 65. If a 63 year old is disabled they may only get two years of payments which might not be a life changing amount.

One other factor that I have not seen mentioned is that if you are disabled then your other expenses may be much higher not only for your medical care that insurance does not cover but also to do things like house and yard work that you would have normally done.


True, that you would look at the number of years you have left on the policy- but balance this with the knowledge that the risk of disability increases as you age. Just a thought.

gasdoc


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