A common car accident on your morning commute could result in a permanent disability. A prolonged illness like cancer or diabetes can also develop into a long-term disability. Arthritis or back pain, something that you’re already dealing with, could leave you unable to work. According to the Center for Disease Control and Prevention, more than 25 million Americans are restricted by a disability.
You might think Social Security Disability Insurance will provide for you. However, the Social Security Administration estimates only 8.8 million will receive disability benefits in 2017. The reason is that Social Security has a very narrow definition of disability. To receive benefits as an adult, you must have a physical or mental impairment that has lasted or is expected to last for at least 12 months or is expected to result in your death. Furthermore, your impairment must also be severe enough to prevent you from performing any “substantial gainful activity.” In other words, you must be unable to perform any work.
While this information is sobering, most families overlook disability insurance in favor of life insurance and property and casualty insurance despite the fact most workers are at a far greater risk of disability than dying. Investors tend to insure what they care about—their life, home, possessions, etc. It is extremely important to insure your most valuable asset: your ability to earn a living.
This is even more important for self-employed individuals from both a probability standpoint but a financial standpoint as well, because a disability will likely bring additional health care costs, and a self-employed individual may be liable for his business debts. A disability can put a business’s future in jeopardy, so business owners may also consider a Business Overhead Expense Insurance policy. These policies are designed to cover business operating expenses should the owner become partially or totally disabled. Generally, business expense policies have a duration of one or two years. The policy often covers fixed operation expenses, such as rent, or mortgage principal and interest payments; equipment and furniture leases; interest on existing business loans, and employee salaries and payroll taxes.
It is also important to understand no disability policy will cover 100% of income. They generally replace 50% to 70% of income until you are able to work again. Those who are in a specialized business may want to consider an own-occupation policy. An own-occupation policy will deem you disabled if you cannot perform the duties of your profession and should not penalize you if you are able to find employment in another field. Own-occupation policies may be more expensive, but for your family, it could be the difference between living on 60% of your current salary or a part-time minimum wage job.
For example, if you are a dentist and have your own practice, a simple car accident that injures your wrist could prevent you from working for several months. During that time, you will still owe on the equipment you financed, the office space, a salary for your office staff and hygienists, not to mention any physical therapy you may need to make a full recovery. An own-occupation policy comes into play when it is determined you can no longer work as a dentist, but you can flip hamburgers at a diner. That could be a significant difference in salary, which would greatly affect your financial plan. Both a business overhead expense policy and an own-occupation disability policy can help prevent your plans from becoming completely derailed.
If you have questions regarding how disability insurance fits into your comprehensive financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.