What is disability insurance and do I need it?

On this episode of A Wiser Retirement™, Casey Smith is joined by Randy Hargett and Kyle Conroy. Randy is a Long Term Care Specialist at Capstone LTC Advisors and Kyle is a Managing Partner at Disability Insurance Services. They discuss what disability insurance is and how to determine if you need it. 

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Summary

Short-Term vs Long-Term Disability

Short-term disability insurance typically provides benefits for a year or less, while long-term disability insurance covers periods beyond that, up to age 65 or 67. The waiting period or elimination period also varies, with short-term policies often having shorter waiting periods and long-term policies having longer ones.

Why consider it? What does it cover? What is the cost?

The chances of becoming disabled are greater than the chances of dying during the term of a life insurance policy. Individual policies offer higher benefit amounts and additional features, such as Social Security benefit riders, which pay an additional benefit if an individual is denied Social Security benefits. Disability insurance typically covers around 60% of an individual’s gross income, and benefits are determined based on income. The cost of the policy depends on age and income. Some policies include cost of living adjustments and automatic increase riders to help keep benefits in line with inflation. There are also different definitions of disability, with some policies providing benefits if an individual cannot perform the duties of their own occupation but can work in another occupation. It is important to consider disability insurance as a financial safety net to help maintain income if you become unable to work due to a disability.

Employer Provided Policies vs Individual Policies

Having both employer-provided and individual disability insurance policies can impact the total disability benefit received. During the underwriting process, insurance companies will consider all existing policies and tax status to determine the total disability benefit. The company may not allow an individual to have two policies covering the same percentage of their income, and they may cap the total benefit at around 60% of the individual’s gross income. However, taxation can increase the actual take-home benefit to around 75-85%. If the employer pays the disability insurance premium, the benefit is taxable, while individual policies should be paid with after-tax dollars for the best tax advantages.

Links:

• Randy Hargett – Capstone LTC Advisors, randy@ltcstep.com
• Kyle Conroy – DI Services, kconroy@diservices.com
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