Dr. Ryan Collins completed his general surgery residency in July of 2007 and began work as a surgeon in September, 2007. His new employer did not offer long term disability as a benefit so he knew he would have to purchase a policy himself.  With the income he was now receiving, it wouldn’t be a problem.  However, he was in no hurry, as he had purchased a policy while in his residency that offered a monthly benefit of $3,500.  “That should suffice for awhile,” he thought, “and besides, I’m not going to do anything that would put me at risk of becoming disabled.  His policy did have an option to purchase additional coverage without proof of medical insurability but he wasn’t eligible to exercise that option until the following April.

Megan was in their beautiful new home, bathing Jennie, their newborn, when the phone call came.  Michael had been in a car accident.  He was going to be okay, the nurse told him.  He suffered lacerations in both arms, but it appeared he would be alright.  The nurse didn’t feel it was appropriate to tell Megan over the phone about the severe nerve damage Ryan sustained in his right hand.

Ryan hadn’t planned for being out of work for 14 months while his hand “healed.”  The loss of income depleted any savings they had.  Due to permanent nerve damage, performing surgery in the future would be out of the question.  The good news was that the disability policy he did have ($3,500/month) did have an own-occupation definition of disability, which meant that his new job in family practice would not prohibit him from receiving benefits.

Granted, his new income of $10,000/month, coupled with his $3,500/monthly disability benefit was still a fairly good living.  However, it was significantly less than the $30,000 a month he was guaranteed as a surgeon. With bonuses and partnership shares in a year, he was looking forward to a monthly income of at least $40,000 a year from now. Between the mortgage on the new house and student loans, he and Megan would have to tighten their belts. Perhaps a smaller house in a different neighborhood would suit them better. If he had to, he thought, bankruptcy could definitely be an option.

Don’t let their story become yours.

Disability insurance is a must for professionals.  If your employer doesn’t offer it, protect yourself with an individual policy.  In many cases, even if you have employer-sponsored coverage, make sure your coverage is maximized with a supplemental individual policy.

Do you have a similar story you would like to share? Send it to stories@lifeinsure.com so we can share it with our readers.  Anonymity is guaranteed, as your stories will be told through the eyes of Ryan and Megan.

According to Principal Life insurance:

• In 2007, 12.8 percent of people ages 21-64 surveyed had a disabling illness. [1]
• 43 percent of people age 40 will have a long-term disability event prior to age 65. [2]

Many assume if they became too sick or hurt to work, they could rely on Social Security or disability insurance benefits from their employer to replace their income. These are great sources of income protection, but they may be unavailable or not enough. Even a short-term disability could eliminate years of savings.

So, it’s Disability Insurance Awareness Month.  What better time is there to research disability insurance and discuss your needs with a disability expert?

[1] U.S. Census Bureau, American Community Survey, 2007
[2] JHA Disability Fact Book, 2006

There are several types of disability policies written specifically to cover the business in the event of the owner’s disability:

Overhead Expense Disability insurance, which I covered in an earlier posting, provides benefits to reimburse the normal and customary fixed monthly business expenses of a business or practice of a professional or business owner while he or she is disabled.  Overhead Expense insurance is intended to provide financial protection when the absence of a business owner would result in a significant loss of revenue.

Some other types of disability insurance for business are:

Key Person Disability Insurance protects the business from loss due to the disability of a key employee.   Business owners can suffer from a key employee’s total disability in several ways:  Loss of management skill and experience; disruption of the business when clients withhold or delay their business until the impact of the employee’s disability is known; difficulties when cautious creditors wait until they can assess how the disability affects the business; increased expenses associated with the hiring and training a key employee’s replacement.

Business Loan Protection is often required by a bank or lending institution to cover the loan payments in the event of the business owner’s disability.  Dentists and Physicians, when opening a new practice, often secure loans to purchase the practice and/or new equipment.  Business loan protection will cover the loan payments in the event of a total disability.   These policies are written to cover the loan payments over a specific period of time, typically the period of the loan.

As you can see, business owners have several options to protect their businesses from loss in the event of a disability.  These policies are most often written in addition to personal disability coverage.

Mutual insurance companies have never been looked upon as very exciting or sexy, but they are finally getting some respect.   With the stocks of publicly held life insurers taking a nose dive in this past year,  (according to Forbes Magazine) they are scrambling for cash by cutting dividends, issuing new shares (diluting existing investors) and begging regulators for a relaxation of capital requirement and lobbying Washington for a cut of the $700 Billion Wall Street bailout.

Mutual companies, on the other hand have not held out a hand to Wall Street and have statutory surpluses that make their publicly held brethren’s mouths water.  Many are paying record-breaking dividends to their policyholders.  A check of the various company ratings (A.M. Best, S&P, and Fitch) validates the financial soundness of these mutual companies.

Why am I mentioning this in a blog about disability insurance?  It’s simple – two major players in the disability marketplace (and two of the companies we represent) are mutual companies.  They are Guardian Life Insurance (also written by Berkshire Life, a wholly-owned subsidiary of Guardian Life) and Mass Mutual Life Insurance.  Financial strength of the insurance company should be a major factor in your decision when evaluating different policies, so I thought a brief discussion about mutual companies in the environment we are in now was in order.

As there are many causes of disability, we often advise to purchase a good quality disability policy with the pregnancy exclusion and then ask the company to add pregnancy back into the policy after the birth.

Insurance companies do not view maternity leave as a disability.  If you are lucky enough to have a policy before you become pregnant, the policy will typically only pay benefits for complications due to pregnancy which prevent one from performing the duties of one’s occupation.   Also, as the elimination period (or waiting period) is typically 90 days or longer, a long term disability policy would not be appropriate for your maternity leave needs.

We often advise as to the cost of waiting to purchase disability insurance and this is a great example of this.  The best time to purchase a disability policy is now.

If you were to become disabled, you probably wouldn’t be available to provide the essential services your customers/clients expect.  You also probably wouldn’t be there to provide the leadership and direction your employees need.  The revenue of the business/practice would most probably decline, but the expenses necessary to keeping the doors open would probably stay the same.

Business Overhead Expense (BOE) is designed to cover your overhead expenses and keep the business running so you would have a viable business to return to.  Without this coverage, you might be forced to consider laying off employees, borrowing money to keep the business alive or, worst case scenario, closing your business.

Overhead Expense Disability insurance can help you keep the business alive by paying ongoing expenses such as rent, utilities and taxes.  It can help pay the salary and benefits of your employees, as well as a portion of the salary of your temporary replacement.  It can also make payments to your existing loans.

The bottom line is a disability does not have to cause the cessation of a business/practice you spent so long to build.  By preserving your business with Overhead Expense Disability insurance, you will help preserve the continuity of your business, while retaining your customers.

When I got home that night, I sat down to digest the lab results.  While I did understand cholesterol and white blood cell count, most of the tests might as well have been written in Greek, as I had no idea what I was looking at.  After several hours attempting to decipher the information, I broke down and decided to call my doctor the next day to review the results with him.

While this never really happened to me, I’m sure, in this fast-moving world, there are a few of you to whom this story sounds familiar.  I experience a  similar scenario daily with people (professionals, mostly) who take disability insurance quotes I provide for them home to digest, without taking advantage of my knowledge and expertise.  While not quite as technical as a lab report, there are terms and provisions in every disability insurance policy that sound similar, but actually perform quite differently at the time of claim.

If you are working with an advisor who is well-versed in disability insurance, take advantage of his/her expertise.  Learn the terms and provisions so you can choose the right policy for your situation.  It might not be life and death as in my story about the blood test, but it can make a difference in whether you are adequately insured in the event of a disability.

The wording of exclusions is typically fairly general (e.g. lower back, as mentioned above) and is often an area of concern for policyholders.  While the concern is understandable, it’s important to understand why the exclusion is worded so generally and how the insurance companies adjudicate claims having to do with the exclusion.

Exclusions, like other policy language, have to be filed with each state’s insurance commission.  If each possible exclusion was included, the list would be far too long.  Therefore, “lower back’ can include all the discs in the area, surrounding muscles and tendons, etc.

When evaluating a claim for benefits, an insurance company will determine if the medical concerns that necessitated the exclusion have any effect on the claim.  Specifically, they will determine if the preexisting condition is a contributor to the current disability.  For instance, a recent car accident would be looked at as the reason for the disability, even if there were lower back problems previously.  If preexisting history is, in fact, a contributor to the current disability, benefit would not be paid.

There are many causes of disability and, even with one exclusion, disability insurance, should be an important component of any financial plan.

1: Get your own credit history

2: Consider disability insurance

Your number one asset is your ability to bring home a paycheck. But what happens if there’s an accident, or you become ill, or maybe you can’t work anymore because of an injury?

That’s where disability insurance comes in. It provides you with a monthly income in case you can’t work. You may be able to purchase long-term disability insurance from your employer, or you can get it on your own.

According to an industry group, the Life and Health Insurance Foundation for Education, about one in five Americans will become disabled for one year or more before the age of 65.

Keep in mind you will pay more for a policy if you’re in a high-risk job or if you’re a smoker. And the younger you are, the cheaper the policy. To figure out how much you would need, check out a calculator at www.life-line.org and click on “disability insurance.”

3: Combine the best 401(k) features

4: Streamline your savings

I am happy to see that more and more financial writers are highly recommending disability insurance, as it is quite often overlooked by many people.  I firmly believe that disability insurance should be an integral part of most people’s financial plan.

Okay, now that I have your attention, here is some interesting information I found regarding heart disease and disability:

• According to the National Academy of an Aging Society, almost 18 million people—7 percent of all Americans—have heart disease. More than half of the population with heart disease is under age 65.
• According to the American Heart Association, coronary heart disease is the leading cause of premature, permanent disability in the U.S. labor force.  People with heart disease are more limited in the type or amount of work they can do compared to those without heart disease.
• According the National Academy of an Aging Society, more than 22 percent of  workers with heart disease have work limitations, compared to just 8 percent of workers without heart disease.
• Coronary heart disease is particularly disabling. Among workers age 51 to 61, for example, some 44 percent of those with heart disease and 56 percent of those with coronary heart disease report that their condition is the cause of a limitation in the type or amount of paid work they can do.
• Coronary heart disease accounts for 19 percent of disability allowances by the Social Security Administration.

Now for the good news - many forms of heart disease are largely preventable. Controlling conditions, such as high blood pressure and diabetes, and engaging in a healthy lifestyle (including quitting smoking) can reduce the risk of heart disease.  And, to protect against the loss of income from heart disease (as well as other health conditions), you should have a long term disability policy.  Health insurance will pay the medical bills, but it won’t replace your income.

Protect your health by changing your lifestyle, if necessary, and protect your income with disability insurance.