• Home
  • About Us
  • Toolkit
  • Getting Finances Done
    • Hiring Advisors
    • Debt Management
    • Spending Plan
  • Insurance
    • Life Insurance
    • Health Insurance
    • Disability Insurance
    • Homeowners/Renters Insurance
  • Contact Us
  • Privacy Policy
  • Risk Tolerance Quiz

The Free Financial Advisor

You are here: Home / Archives for Disability insurance

Three Steps to an Iron-Clad Protection Plan

April 18, 2013 by The Other Guy 11 Comments

“No one knows the day or the hour…”

Unfortunately, that phrase is so true.  We here in the O.G. house, along with the whole FFA crew, join those across the world in thinking about (dare I say ‘praying for’) those impacted by the terrorism in Boston, the terrible storms in the Midwest, and the explosion in Texas.  The phrase “when it rains, it pours” comes to mind.

These recent events have encouraged me–nay, they’ve compelled me, to write another bit about protection planning.  There are three crucial pieces to a well-designed protection plan and collectively, they are the single most important part of your overall financial plan.  I don’t care what funds you use, what your company 401(k) match is, or even how many pre-IPO shares of Google you own – without an adequate protection plan in place, you have nothing.

Are you worried about your protection strategy? Here are three steps to an iron-clad protection plan.

 

Step 1:  Forget the 6 months notion – head right to 12 months of cash

 

Many financial professionals suggest three to six months worth of expenses in a cash reserve position.  That’s baloney.  If you were sick or injured, would you want to be counting backwards from 90 until you run out of money?  I didn’t think so.  Skip three months and six and head right to 12 months of lifestyle-sustaining cash reserve, especially if you work for yourself or in an unstable industry…and what industry ISN’T unstable these days?  This will take some work to figure out, because it’s not just your annual salary, but rather what you need to sustain your lifestyle for the next 12 months.  We’ve discussed saving in a Roth IRA as a dual-purpose account HERE if that suits you better.

Why do you need so much in cash?

First of all, what exactly is “so much” anyway?  Obviously, “so much” is a relative and personal term – I have one client who “only” has $90,000 in his savings.  That’s on top of the “nearly empty” checking account with $55,000 in it.  Oh, and he spends $60,000 a year  – 100% covered by his pension.  Cash is king.  It allows you to negotiate (doctors have different “cash” prices – as do other businesses) and is easily accessible.  The last thing you want in an emergency is to be floating credit card balances while your insurance company decides how and when they’re going to pay.  Get emergency cash now.  Make a plan and do it.

 

Step 2:  Buy disability insurance beyond what your company provides

 

This is an increased cost, no doubt, but who among us could live on less than 50% of your current income?  I know things around here would get a little tight, for sure!  Remember what I said a few minutes ago about “lifestyle-sustaining” income?  If something tragic happens, should that mean that your kids can’t play soccer anymore?  What about dance class?  If you’re no longer able to work for the rest of your life, do you think you should continue to build up a retirement nest-egg?  Disability coverage only usually pays until age 65!  Then what will you do?

It’s usually best to find your own outside coverage in addition to what your employer provides.  Group coverage will be 100% taxable when you receive it.  Coverage paid for entirely by you is 100% tax-free.

Take this example:

Let’s say you make $80,000 a year as an electrical engineer.  You have group disability of 60% that kicks in after you’ve exhausted all your vacation and sick time.  Sixty-percent of $80,000 is $48,000, right?  Now, let’s subtract 25% for taxes, so that leaves you with $36,000, or roughly $3,000 a month.  You were making $5,000 a month after tax.  Can you today cut two grand out of your household budget?  No?  I didn’t think so.  Everyone’s cost may be different, but let’s say a disability policy that pays you $2,000/mo DI costs $150/mo.  That’s $1,800 a year…is it worth it?  Let’s put it another way:  Your boss says, “Hey Jimmy, we’re going to cut your salary from $80,000 to $78,200 from now on, but if you even get sick or can’t work ‘cause you’re too hurt, you’ll get all your pay until you retire.”  What would you think? I think you’d take that plan.

Go, right now, do not pass go, do not collect $200, go now and acquire an disability application.  Fill said application out and send in the first month’s premium.  Do it now.

 

Step 3:  Buy a gazillion dollars of life insurance.

 

I won’t spend a ton of time on this – we’ve discussed this many times before….but whatever you think you need for life insurance, double it…then double it again.  Too many people buy only a minimal amount of life insurance. If people rely on you for money now or in the near future, go online to a life insurance wholesale shop (if you can’t think of any, in the US, google “buy life insurance”…there are a lot of interesting blogs about life insurance. If you are based in UK, then I recommend reading this blog for latest news and updates related to life insurance.) and purchase a policy.  Twenty or thirty years should do it and the policy had better have lots of zeros (at least 6) and a number bigger than 1 at the beginning.  Does that sound like too much coverage? If you ask any financial planner who’s had a client die–who’s had the unfortunate task of delivering a life insurance check to a widow or survivor–they all know that the survivor nearly always says the same thing: “Is that it?  How am I supposed to make it on that?”

If you want to get technical, read this to figure out how much you’ll need.

I hate that these evil and terribly tragic things happen.  I, in no way shape or form, can justify them or even begin to make sense of them.  In the days and weeks ahead, we’ll hear from the culprits and it still won’t make sense.  What I do know is this:  We cannot ever predict the future.  We can only have a plan on the shelf to execute once tomorrow is here.

Enhanced by Zemanta

Filed Under: Insurance Tagged With: Boston, Disability insurance, Financial services, Insurance, life insurance, Roth IRA

Disability Insurance Optional? I Think Not. – Our Boner of the Week!

January 2, 2012 by Average Joe 6 Comments

Hey, it’s always fun to say stuff off the cuff with friends, but when you have readers who take your words seriously and act on them….it’s probably best to do some research first. Our Boner of the Week! Is the most outrageous thing I’ve read on the internet in the last seven days.

…and we’re back to personal finance blogs!

A well-known blogger this week described disability insurance as “optional” in an article about types of insurance you should pursue. Really? Maybe it’s “optional” in the same way other insurances may be bypassed if you have other forms of coverage, but I don’t think it’s “optional” like the guacamole on my nachos at Buffalo Wild Wings. Don’t get me wrong, I’m not really a guacamole or disability insurance lover, but I can safely pass on the former. The latter….well, let us see for ourselves…..

When you’re deciding which insurances you need, disability coverage should be at the top of your list.

Here are the reasons why:

– If you can’t work, you can’t feed yourself without income. Unless you’re hoping for that awesome government check every month, disability insurance will protect your family and your things. Know why? You’ll still have income.

– Don’t think it’s going to happen to you? Think again. There’s some great news when it comes to auto accidents. Roads are becoming safer. There were just over 33,000 highway accident fatalities in 2009, as compared to over 43,000 in 2005. Instead of dying, people are just maimed.

seinfeldcd

Gratuitous Kind-of-Funny Picture to Break Up the Post!

Need Statistics? How about these eye-popping numbers on disability:

o As of 2009, persons in the U.S. have a 12 percent chance of suffering a disability. (Cornell University)

o Just over 1 in 4 persons who are 20 years old today will suffer a disability. (Council for Disability Awareness)

o Over 12 percent of the population is currently disabled. (CDA)

o 61 percent of wage earners personally know someone who has been disabled for three months or longer during their working career. (CDA)

Insurance is about odds. I dislike insurance policies as much as the next guy. That’s why my goal is to only buy insurances that I’ll probably need and avoid those that I won’t. Because I’m determining the chance of risk, it makes sense for me to check the probability of the occurance of need.

So, let’s examine the chances of a disability vs. other types of insurance listed in the piece:

Disability: 1:12 (Cornell University, listed above)

Auto: 5.67:100 (collision claims, according to Insurance Information Institute)

Home: 6:100 (Insurance Information Institute)

In fact, the author of the piece acknowledges the high rate of disability but still lists it as optional insurance. I can’t understand this logic.

Life insurance isn’t considered optional in her piece…in fact it’s listed as the third most important type of coverage (behind auto and health). But to express it in the most crude terms possible….isn’t your family better off if you’re dead than if you’re sucking down food and taking up space? They’ll have to cart you to the doctor and help you with basic activities. You’ll use electricity as you watch television or listen to the radio instead of work. It’s not fun for you and expensive for your family.

Not working? Long Term Care coverage isn’t even mentioned in the blogger’s piece and represents a huge hole in the financial plans of retirees who have enough money to protect but not enough to withstand the huge costs associated with custodial care on a daily basis. I won’t go into these facts here, because it’s slightly off-topic.

I’m tired of:

– “financial professionals” describing insurances and listing disability policies as the stepchild of the industry.

– consumers saying “I have disability through work, so I’m all set.” Workplace disability coverage often is capped at a staggeringly low amount of coverage. Why? Because a disability is expensive and insurance to cover a disability is expensive. Do your homework before flippantly deciding that “my insurance through work is enough.”

Still, maybe the blogger is off the hook. Here’s when you don’t need disability coverage:

1) if you have enough money to cover a disability, you can self-insure.

2) if your income stream comes from places that would be unaffected by your disability, and your health care coverage will tackle additional costs.

I’d like to believe that when she wrote “optional” next to disability insurance she meant to write “optional” next to every insurance coverage. Otherwise, I’m sure she meant that you should explore disability insurance as thoroughly as you would health, auto, home and life insurance.

Dearest minions,

When some professional writer, television talking head, or paid advisor tells you to look past an insurance type, always reach for statistics. Although I’m as bad at math as the next personal financial blogger, the numbers will usually find a way to lead me to the truth. The truth in this case: find adequate disability coverage.

Now it’s your turn. What insurances aren’t “optional” in your life? Which do you skip and take the risk?

Enhanced by Zemanta

Filed Under: Planning, risk management, smack down! Tagged With: Disability, Disability insurance, Insurance, Long-term care

FOLLOW US

Search this site:


Recent Posts

  • How long should you keep financial records after a death? by Jacob Sensiba
  • Can My Savings Account Affect My Financial Aid? by Tamila McDonald
  • What Advantages and Disadvantages Are There To… by Jacob Sensiba
  • How to Recover Pay Stubs From Your Old Job? by Susan Paige
  • How to Avoid NJ Exit Tax by Jacob Sensiba
  • When Are Manufactured Homes a Good Investment? by Tamila McDonald
  • Appreciating vs. Depreciating Assets by Jacob Sensiba

Copyright © 2022 · News Pro Theme on Genesis Framework