Disability Insurance

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stepjone
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Joined: Wed Dec 26, 2007 3:04 am

Disability Insurance

Post by stepjone » Wed Dec 26, 2007 3:16 am

I have been told by my financial advisor that I must purhcase additional disability insurance to my already existing policy to match my desired income level per month for the next 25 years. My age is 33.

First question: Are there any general thoughts on whether disability insurance is worth the significant investment?

Second Question: If so, how much is generally recommended and the basis of it?

Third Question: What are the tiggers in life for discontinuing disability insurance?

Thanks for all your help!
:?

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Disability Insurance

Post by Valuethinker » Wed Dec 26, 2007 8:36 am

stepjone wrote:I have been told by my financial advisor that I must purhcase additional disability insurance to my already existing policy to match my desired income level per month for the next 25 years. My age is 33.

First question: Are there any general thoughts on whether disability insurance is worth the significant investment?

Second Question: If so, how much is generally recommended and the basis of it?

Third Question: What are the tiggers in life for discontinuing disability insurance?

Thanks for all your help!
:?


Short answers:
1. It's insurance, not an investment. It's very important, but it is not an investment.

2. up to 2/3rds of your income, and at least 50%. However I would recommend that you self insure for at least the first 90 days.

3. having enough assets that you could survive not being able to work again. Survive and maintain an acceptable standard of life into your retirement years.

More info

Long Term Disability is a key form of insurance: most of us have too much life insurance, and too little LTD. Most of us dramatically underestimate the risks of being disabled in our careers.

However:

- a good contract, with a good insurer, is expensive. you need an 'own occupation' definition of disability, a benefit that is indexed to inflation and that pays at least until you are 60. Insurer counts: both future financial stability and claims experience (some insurers are famous for finding ways not to pay)

Note what being disabled would do to your ability to build up other assets.

- your employer contract is likely of very much lower quality: much harder to claim on, and frequently limited (eg to 5 years)

- your maximum income insurance, from all sources, would be c. 2/3rds of your pre disability income. However if you pay for the insurance yourself, the benefit is normally not taxable

- I don't know how the US treats your SS disability, but that would be included in the 2/3rds, I think.

- get a long exemption period, and self insure eg for the first 120 days of disability. There is a big difference in cost between a 30 day contract, and a 120 day one.

- you need a contract that guarantees your premium, even if your health deteriorates. The diagnosis of a disease like manic-depression or chronic back pain will make you ineligible for even a 'rated' policy.

You need a lot of research to get the right contract. Worth searching Consumer Reports to see if they have covered this, and the various discussions we have had here. (search 'disability insurance' and 'LTD' etc.).

bolt
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Post by bolt » Wed Dec 26, 2007 11:50 am

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White Coat Investor
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Post by White Coat Investor » Wed Dec 26, 2007 4:15 pm

What does your adviser make off your policy? Make sure you understand this before you buy.

A good individual disability policy is very expensive. Expect to pay ~4% of the amount covered. It is worth it for me, but you'll have to evaluate that for yourself.

You can drop your disability policy when you no longer need your income. I don't think you need to replace your entire income, but I'd try to cover 70% of it between your group policy and your individual policy. Obviously if you get disabled you want as much as possible and if you never get disabled you want as little as possible. Most insurance agents will sell you as much as you will buy.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Wed Dec 26, 2007 4:28 pm

EmergDoc wrote:
You can drop your disability policy when you no longer need your income. I don't think you need to replace your entire income, but I'd try to cover 70% of it between your group policy and your individual policy.


In practice you cannot claim more than 2/3rds of your pre disability income, from all sources. There is usually a clause preventing that. (70% might be the theoretical maximum).

Certain professions (like teachers and blue collar workers) have such a high disability claims experience that I don't think it's possible to get private insurance. If your union hasn't negotiated it as a benefit, then you are out of look.

Conversely doctors and lawyers (what was called in my day 'level 5' occupations) get preferential rates. But someone like a surgeon would have a different rate from a cardiologist say, because the risk of disability is much higher.

stepjone
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Joined: Wed Dec 26, 2007 3:04 am

Post by stepjone » Wed Dec 26, 2007 10:48 pm

Thank you everyone for the replies. My head is very clear now where I need to go and what I need to do. It helps getting some advice and support.

Thanks
stepjone

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