Column 45 Disability Insurance

May 5th column : Disability Insurance

While the dust settle around the open enrollment period for the Affordable Care Act (ACA) it might be a good time to consider insuring your most valuable asset.  Your ability to earn an income if the most valuable asset in your family. 

I once did a trade show and enticed visitors to look behind the curtain at the most incredible money machine they would ever see. Of course, it was simply a mirror that showed their reflection.  We often lose sight of the fact that absent a large asset base or rich relatives, our ability to earn an income is our most valuable asset. One report from the Social Security Administration says that 25% of today's 20 year olds will become disabled at some point before they retire.

So, the big question is "How long could you live on your reserves if you were disabled tomorrow?" Financial Advisors will suggest you have at least 3-6 months of income in liquid savings and even 12 months is preferable.

In California it's difficult to buy disability income insurance, particularly for blue collar workers.  So an employer sponsored plan is often the best way to obtain this protection.

An employee in California has access to SDI: State Disability Income benefits.  Many other states do not provide this benefit.  Generally, benefits can start after 8 days of disability and are limited to 52 weeks.  If you are self-employed, you must opt to enroll in that plan.  It is not automatic.

For claims beginning on or after January 1, 2014, weekly benefits range from $50 to a maximum of $1,075. To qualify for the maximum weekly benefit amount ($1,075) an individual must earn at least $25,385.46 in a calendar quarter during the base period.

Social Security may pay benefits for a long term disability.  Worker's compensation may pay an income benefit, but only if the disability is work related. 

Some employers provide additional disability insurance over SDI, but it is typically a larger employer that does so.  Check your benefit package and look at the plan provisions.

Most small employers are unaware that they can actually provide a decent benefit for their employees at a relatively small cost.  This can be a win-win for the business owner that knows s/he needs more coverage but can't afford or qualify for an individual plan.  The employer may even consider providing a small base policy and let the employees "buy-up" to a higher amount.  This strategy works very well to get better underwriting results when an employer may not be insurable at the best rates.  The insurer gives a better break for multiple lives being insured.

High wage earning professionals want to be sure to obtain the maximum amount of individual disability insurance, before they obtain group insurance.  When underwriting disability insurance current coverage is deducted from the amount available.  This is not the case with group plans. 

The factors that affect rates, in addition to health history are:

Benefit level: this is the percentage of pre-disability earnings that you require.  So the more you buy, the higher the price.

Benefit period: this is how long the benefits continue. The longer the benefit period the higher the price

Elimination/waiting period:  this is how long you must be disabled before the plan begins to pay.  The longer the waiting period, the lower the price.

Inflation protection:  If you want to guarantee that your income will increase while you are disabled, this is an important option to choose.  The inflation rates can be "simple" or "compound".  The rate for compounded protection is higher, because it generates a higher income increase.

There are many carriers that write disability insurance in our state.  Be sure to work with a broker who will explain the plan provisions and help you understand how to get the best value for your dollar for yourself and your employees.

*Information provided in this column is "to the best of my knowledge based on press deadline. Submit your questions to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it to be answered in the paper