CHICAGO — A few years ago, the owner of a small landscaping business asked me to help him with some business problems. He took care of our yard work, but had plenty of time to spend with me since he had just broken his ankle playing a little one-on-one with his teen-aged son (something I learned not to do many years ago).
Like other business owners I’ve known over the years, Tom (not his real name) had life insurance but no disability insurance. Since Tom’s personal labor comprised the nucleus of his business, the period of six weeks or so during which he wasn’t able to work turned out to be a serious financial setback for him. However, if he followed my recommendation, he won’t be caught in this fix again. No self-employed person should ever risk the dangers of uninsured disability.
Unlike life insurance, disability insurance is designed to protect you (and your family) from financial hardship while you are still alive. In my view, disability insurance is at least as important as life insurance for self-employed breadwinners. According to some reports, as many as one-third of all workers will eventually suffer a disability that keeps them out of work for at least 90 days.
Remember: It doesn’t take an apocalyptic tragedy to put you out of work for a while. A broken ankle or a minor auto accident can do the trick just fine.
If you are an employee, depending on your employer and your state, you probably have some protection against disability, and perhaps it will be all you need. Whether you are an employee or an owner of the business, familiarize yourself with how much protection you have; it may be far less comprehensive than you think. Yes, Social Security offers some disability coverage, but qualifying for the government’s definition of “disabled” has turned out to be a lot tougher than many people expected.
When you go out to purchase a disability policy, don’t hesitate to shop around. Insurance contracts are full of the most arcane language you can imagine, written deliberately, I believe, to make it difficult to understand. Legislation in recent years has improved this situation somewhat, but reading an insurance policy is still a linguistic adventure.
If you are lucky enough to have an insurance agent whom you trust, you’ll need his help. Searching for a disability policy provides an excellent illustration of why it is better to work with a trustworthy independent agent who is not tied to a single insurer.
Even with a good agent and a batch of price quotes, you need to be informed enough to understand your basic needs. As with life insurance, you want to be sure your policy is guaranteed to be both renewable and non-cancellable as long as you pay your premiums on time. Your policy should also allow the purchase of additional coverage as your income grows and your needs change. Most importantly, it must contain coverage for a long-term disability, guaranteeing your payments at least until the normal retirement age of 65. At this point, an inflation provision is essential. If you suffer a long-term disability, your payments will erode over time unless the policy contains a provision to adjust payments for inflation.
AMOUNT OF DISABILITY INSURANCE?
How much disability should you buy? As with life insurance, it depends on your needs. As a rule of thumb, some insurance advisers suggest coverage amounting to 75% of your current income. Disability insurance payments are non-taxable, so you probably won’t need 100% of your normal income to maintain your standard of living.
Can you learn more about insurance on the Internet? Of course you can. Not only can you find helpful general information on insurance, shopping the Internet is also becoming a smart way to purchase insurance. Many sites are available, and some enable you to receive immediate quotes.
To find an appropriate insurance website, log on to one of the major search engines. My favorite is Google. Just type in what you are looking for, e.g., “disability insurance,” and you’ll wind up knowing more than you ever wanted to know about the subject.
Some sites, as you might imagine, belong to the insurance companies themselves. While this is not improper, it may not allow for objective counsel in all cases; kind of like asking your plumber to come over and check out your house to see if anything needs attention.
Many websites provide dependable information on disability insurance. One of the most informative and easy to navigate sites is for MassMutual Financial Group.
Whether you look to the Internet or to conventional sources to help make insurance decisions, remember that insurance company representatives are, by every definition, salesmen. While there is nothing wrong in consulting with a knowledgeable salesman in any field, it’s up to you to maintain your perspective. Even the kindest, most sincere and most knowledgeable salesperson doesn’t make any money unless she sells you something.
Human nature being what it is, you would be wise to never lose sight of that fact.