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Disability Insurance Tips for High Income Earners

Published October 24, 2016

Disability insurance is very important during your working years to protect your income stream in the event you cannot work due to injury or illness.  The insurance is designed to replace a percentage of your earnings, not 100%.  The replacement percentage is typically between 60% - 66%, as the insurers want there to be some incentive for plan participants to return to work.  Benefits generally stop at retirement age (65), as they’re designed to replace earnings not retirement benefits.

Most disability insurance is provided by employers through group plans.  However, group plans typically have an income limit cap that may fall well below 60% of income for a high income earner.  In order to carry adequate insurance, a private policy can be purchased to cover the benefit gap and provide coverage up to 60%-66% of income.

It’s not enough just to buy a policy; It’s important to know that it will pay the benefits you expect when it’s needed the most. Each of these tips provides a vital piece of the disability insurance puzzle when you’re purchasing a disability policy.

Seek Value over Price

  • You should expect to pay up to 4 percent of your salary to secure a solid disability insurance plan that meets your needs. 
  • “You get what you pay for” is not something you want to hear when protecting your most valuable asset. Having paid the least expensive premium will be the least of your concerns when you actually need the benefits.
  • Disability insurance is not a commodity; it is a contract that specifies when and if benefits will be paid.
  • There are many more important components of a disability policy beyond price that should be carefully considered such as the exact definition of disability.

Scrutinize the Definition of Disability

  • A policy that pays a benefit when you are unable to perform the specific duties of your own occupation are much more preferable than one that pays only if you can’t perform the duties of any occupation. 

Consider a 90-day Waiting Period

  • The 90-day waiting period is typically the best option for keeping your premium low while maximizing your coverage. To go from a 90-day waiting period to 60 days could almost double your premium. Conversely, by extending the waiting period to 180 days you might only realize a 5 percent reduction in premium.

Protect Your Purchasing Power

  • Over a 20-year period your purchasing power could be reduced by half due to inflation. A monthly benefit of $5,000 would amount to $1.2 million over 20 years without adjustments for inflation. With inflation adjustments of 3 percent a year, the total benefit amount would be $1,641,000.

Review the Company Ratings

  • Your disability company could be your primary income source for a long time, so it’s important that its financial integrity be unquestioned.
  • The financial strength of disability insurance companies are assessed and ranked by third part rating services. We recommend you limit your selection of companies to those rated no lower than A+ by AM Best.

One of your most valuable assets is your ability to earn an income; so protecting it is vital to ensuring your financial security. Over the years, disability income insurance has become a specialty insurance product, so it is important to work with an insurance professional experienced in developing disability insurance plans for professionals and executives. 

trueNorth Wealth Advisors is a registered trade name of trueNorth Financial Services, LLC, and is registered in Washington and New Hampshire. The Advisor may not transact business in states where it is not appropriately registered, excluded or exempted from registration.

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