October 2001
Disability Insurance: Demystifying the Process
By Leslie A. Smith
 "Better
I should be a trapeze artist if I want disability insurance".
That's what writer and frequent contributor to Kiplinger Magazine,
Kimberly Lankford discovered when she became a freelance writer.
Like many of us, when she left the confines of an office to establish
a home-based business, she knew she needed disability insurance.
What she didn't know was how difficult it would be to get.
As a financial news writer for a number of years, she had interviewed
financial planners, financial advisers, and insurance agents whom
had provided the sobering statistics about the need for disability
insurance:
| Sobering Realities
The sobering reality is that it's easier for a trapeze artist
to obtain the safety net of disability insurance than a home-based
female consultant. Crop dusters, firefighters, and NASCAR
drivers have a better chance of getting coverage. We're in
good company though: accountants, graphic designers, web-designers
and other "safe" professions all have the same problem.
The first mystery of disability insurance:
"safe" professions are irrelevant
The danger or lack of danger in your profession is irrelevant.
Insurance companies place greater importance on verifiable
work.
It seems that disability insurers met with their own set
of sobering realities with the growth in home-based businesses.
During the early 90's claims in California saw a tremendous
rise, even putting some insurers out of business. Apparently
people with home-based businesses that never got off the ground
began claiming disabilities in record numbers. Insurers also
received expensive claims from Medical doctors in record numbers,
who found it more lucrative to become "disabled"
than to experience the reductions in income brought on by
HMO's and PPO's. |
- Sobering Statistics
1-in-3 workers lose their ability to work due to
a disability lasting 90 days or more. Source: Commissioners
Individual Disability Table
- A 30 year old male has a 1-in-5 probability that he will
suffer a long term disability before retirement.
- A 30 year old female has a 1-in-3 probability the she
will suffer a long term disability. Source: R.M.Olivella
"Do you really need disability insurance"
- Regardless of age or sex, an individual that is disabled
for 6 months or longer has a 50% chance of remaining disabled
for 5 years or longer. Source: US Dept of Education
- The two most common causes of disability are heart disease
and back injuries followed by anxiety and depression. Source:
US Dept of Education, Natl Institute On Disability and Rehabilitation
Research
- More people lose their homes through disability than
to fire and death. Source: Natl Safety Council Accident
Facts
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Health is secondary
When obtaining medical insurance or life insurance we're
aware that our health is of utmost concern to potential insurers.
With disability insurance health and profession are secondary considerations.
Disability claims from home-based businesses are difficult to disprove.
If a claim is made from a home-based business, insurers have a difficult
time challenging the claim, short of peeping in windows. They can't
talk to your boss or your co-workers to verify your claim.
Wait, there's hope
Before you throw up your hands, toss in the towel, give up
hope and say "it will never happen to me, so why bother?",
consider the following. The statistics say it is likely to happen
to you and there are things you can do to get insurance or reduce
your risk of financial hardship.
Strategies and Considerations Buy before you try.
If you're reading this, you're probably already self-employed.
But if you're only considering becoming a consultant, apply for
insurance before you start. Also, buy before you try a dangerous
hobby, become pregnant or visit a therapist.
Try, try again.
If you get turned down for disability insurance or find the
cost prohibitive, reapply next year. The longer you're self-employed
(three years is a marker) and the more consistent your business,
the better risk you are to an insurer.
Start with the best.
Often the best companies, as measured by their independent
ratings and financial strength, offer the best rates. A good agent
and adviser will know who the top companies are, so ask for the
best.
Every little bit helps.
It's all right to apply for the best coverage you can get,
but remember, the more inclusive the policy the more expensive it
will be. If you find the greatest coverage is too costly consider
reducing coverage; reduce the income you will receive or increase
the waiting period. If you become disabled, every little bit of
income will help.
Own life insurance? Mortgage insurance? Get
the rider.
Most life insurance policies and some mortgage insurance
policies have what's known as "waiver of premium" riders.
At a small additional cost for the policy the insurance company
will "waive" or allow you not to pay the premium should
you become disabled. If you're disabled it's one less bill to pay.
Apply for 2 not 5.
Often people will apply for coverage with 5 different insurers
in the hopes of finding the best rate for disability insurance.
This can actually harm your chances and increase your rate as insurers
face the risk of a claimant discovering that they are better off
"disabled" if they're able to get insurance from several
carriers. Instead, apply for two policies and let them know it is
a competitive situation. They really do want your business.
Think long term
A 3 month or even one year disability can be overcome by
financial reserves or even credit and family assistance. But the
real tragedy is when disability is permanent. Two visible examples
of long term disability are Christopher Reeves and Michael J. Fox.
These events are all too common and the best reason to buy disability
insurance.
More Art than Science
Underwriting a policy and getting insurance is often more
art than science because there are so many variables to consider.
While quotes are available via the web, a good agent or adviser
can help you through the mysteries of disability insurance and in
the end save you time and money.
Just remember, you don't have to become a trapeze artist to get
the safety net of disability.
About the Author
Leslie Smith is an independent financial advisor practicing
in San Mateo. As a general securities Principal she has earned and
holds professional licenses through the National Assoc. of Securities
Dealers. These include series 24, 7, 63 and 65, the registered investment
advisors designation. Additionally she maintains a California Insurance
license. As a registered branch office of SunAmerica Securities,
she has at her disposal a team of specialists that can offer the
financial planning tools and products most suited to the needs of
the individuals and businesses she serves. Her areas of expertise
include retirement planning, estate planning, investment management,
disability insurance and life insurance. Prior to becoming an independent
financial consultant she was a Vice President of Investments with
Bank of America. She has provided wealth building strategies to
individuals and businesses for nearly 20 years. Email her at lasNvst@aol.com
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