Agents – Want to educate your clients about the need for disability insurance? Frequent, consistent communication is key. Below is an article that you can copy and paste into your next client newsletter.
The What, Why and How of Disability Insurance
If you think you don’t need disability insurance, think again. In fact, it’s one of the most important pillars of any financial plan. Once you’ve reviewed the information below, be sure to discuss it with your financial advisor.
Q: What protection does disability insurance provide?
Think of disability insurance as paycheck protection. If you become ill or are injured and are not able to work for some time, the disability insurance benefit provides income replacement to help pay your bills and sustain your lifestyle while you focus on recovery.
Q: Why do I need disability insurance?
Roughly 25 percent of people entering the workforce today will have their income interrupted for 3 months or more due to illness or injury. Most commonly this is due to musculoskeletal issues or cancer. As you might expect, older individuals are more likely to file a claim. But don’t let that delay your decision to inquire about disability insurance. As with many types of insurance, premiums are significantly less when you are young and healthy.
Q: How do disability insurance policies work?
Policies have a waiting period, often between 90 and 180 days, before the monthly benefit begins. Once the benefit begins, it continues for as long as you are unable to work or until the end of the benefit period, whichever comes first. Benefit periods vary. You can purchase a less expensive policy that will cover a two-year period or a more robust policy that pays benefits until age 65.
Q: What will my disability insurance monthly benefit be?
Disability insurance usually replaces a percentage of your gross salary. A common benefit amount is 60 to 70 percent. If you pay for your own individual disability insurance policy, your benefit is typically not subject to income tax.
Here’s an example for a policy that covers 70 percent of income with a waiting period of 90 days and a benefit period of five years:
The insured’s income is $75,000. Seventy percent of $75,000 is $52,500 or $4,375 per month. Once the 90-day waiting period is satisfied, the insured is eligible to receive the monthly benefit of $4,375. The benefit is not subject to Federal and FICA withholding rate. The monthly benefit will continue for five years or until the insured is able to return to work, whichever comes first.
Q: Doesn’t my work provide disability insurance?
Disability insurance is not an employee benefit for almost 60 percent of working Americans. For those who do have an employer-provided policy, the coverage is likely insufficient. That’s because employer-paid benefits are taxed, so if you have a 60% benefit from work, it will be closer to 35% after taxes are deducted. Employer provided plans may also have a cap, and usually only cover base salary – not commissions or bonuses.
Now you know the basics about disability insurance and why it is important to your financial health. Your next step is to talk to your financial advisor about how to protect your paycheck.