Protect your income, your most valuable asset

  • Tue Apr 24th, 2012 9:36am

By Paul Pukis Mosiac Insurance Alliance

Few people have taken the steps necessary to protect the foundation of their financial future by protecting the most important asset they have — their ability to earn an income. A long-term illness or injury would be financially devastating, yet less than 15 percent of us have disability insurance to protect our incomes. If you have it, congratulate yourself. If you’re among the 85 percent of individuals who have not taken the steps to protect your income read on.

Approximately half of all foreclosures and bankruptcies in the U.S. are a result of an illness or injury. Every year, about 1 in 7 American workers will suffer a long-term disability. The risk of suffering an extended disability is up to five times greater than the risk of dying during your working years.

Ignoring the risk of disability can lead to financial ruin. Consider this: If you’ve been wise enough to save 10 percent of your earnings over the last 10 years, a disability lasting one year would wipe that out. This is why financial planners agree disability insurance is one of the most important forms of protection you can own.

A disability also creates enormous emotional pressure when your daily routine is turned upside down. The financial pressure created compounds the emotional demands as worries arise about how to pay the mortgage, car loan, health insurance and other monthly bills, not to mention saving for the kids’ college education and your retirement. The financial pressure only slows your recovery, compounding the problems and is often too much for families to handle. A disability insurance program can solve many of these issues.

Simply stated, individual disability insurance is designed to provide you an income stream if an illness or injury prevents you from working. However, the product is complicated and there are several important considerations.

The most important is the definition of disability, because it determines if benefits are payable. You should consider policies that provide you with a definition that protects you if you cannot work in your occupation. This definition can be referred to either as “own occupation” or “modified own occupation.” Without it, the insurance carrier can argue that you are not disabled if you could still work in another occupation (regardless of what it might be) and thus are not eligible for benefits.

Another contractual provision that you need to consider is residual or partial disability benefits. A residual disability benefit will provide additional income when you are able to work but suffer a loss of income. Insurance carriers report that 70 to 80 percent of disability claims are at some point partial in nature. Consider how important this provision would be if you were to suffer from a progressive disease such as multiple sclerosis. How would recovery from a heart attack, back surgery or cancer affect your ability to work full-time?

Other policy options to consider include inflation protection, additional coverage regardless of your health and catastrophic benefits.

What does it cost? After age, gender and occupation, the two items that have the largest impact on premium are the waiting and benefit periods. The shorter the waiting period (the time you must be sick or hurt before benefits are paid) and the longer the benefit period, the greater the premium. The most cost-effective waiting period is 90 days while the two most effective benefit periods are five years and to age 65. You can expect the premium to be 2 percent to 4 percent of your annual earnings.

Consider it a small price to pay for protecting your most valuable asset and your financial future.

For other questions about your business insurance, contact Paul Pukis at Mosaic Insurance Alliance at 425-320-4280 or