The realization that a little human being is now solely dependent on you can be quite daunting. Parenthood brings new responsibilities; ensuring that you can constantly provide for your child’s needs requires serious consideration. A long-term disability insurance can help you maintain your lifestyle even when illness or injury prevents you from working.
Dreaming of Baby speaks with Steve Crawford from Disability Insurance Quotes on why you should consider Disability Insurance and how it works.
Dreaming of Baby: Good morning Steve and welcome to Dreaming of Baby. We’re looking forward to our conversation related to the financial and insurance aspects of parenthood. Before we start with our discussion, it would be great if you could introduce yourself to our readers.
Steve Crawford: My name is Steve Crawford, and I am the CEO of Disability Insurance Quotes. Most of our business is sold to families and people with incomes they want to protect across the United States. We are a small company in Rockville, MD with 18 employees serving people all across the country. I have been the leading agent for Guardian Life nationwide multiple times across the country as well and have been in DI business since 1997. I am an expert in this field, the odds are that very few people have been involved with more disability insurance cases than I have since that time.
Why should I get Disability Insurance?
Dreaming of Baby: Excellent, so to get us started. Why should parents to be consider getting a disability insurance?
Steve Crawford: Most people never even think about disability insurance until they start a family. It is the time in their life when they have to think about somebody other than themselves. When they have a child, and hold their baby for the first time, the idea of having somebody truly dependent on them makes them think about true responsibility.
Steve Crawford: It is the time when families start making plans for the family, and not just for oneself. Often people start planning for college, or purchase life insurance, but disability isn’t something most people have ever thought of before they have a child. When they hold their baby and realize everything they have now, and everything they hope to have in the future is dependent on their ability to bring home a paycheck, that’s when most people decide to think about DI for the first time.
Steve Crawford: “When they hold their baby and realize everything they have now, and everything they hope to have in the future is dependent on their ability to bring home a paycheck, that’s when most people decide to think about DI for the first time.”
What is Disability Insurance?
Dreaming of Baby: What exactly is disability insurance and what can one expect to be covered by it?
Steve Crawford: There are two types of disability insurance: Group LTD which is often provided at work, and individual DI which means you have to buy it on your own. Group LTD is one policy covering everybody at the company, it will say we cover 60% of earnings up to a monthly maximum of either 5 or 10K a month. People with incomes below $100K typically just have group LTD.
Steve Crawford: The problem with Group LTD is most often it is provided by the company for free, which means any benefits are taxable during a claim. So, if I make $100K a year, and my Group LTD pays up to a maximum of $10K a month, I should get $5,000 a month during a claim… but then I have to pay taxes on the $5K a month. So how does somebody making $100K a year live on $3,600 a month during a disability claim (minus 1,400 for taxes).
How much does Disability Insurance cost?
Dreaming of Baby: So how much does disability insurance cost?
Steve Crawford: Like I said, Group LTD is typically free from companies, although some companies charge their employees a bit.
Steve Crawford: An individual policy is sold in two ways. If somebody has Group LTD they can buy a small supplemental plan to make up for the lost taxes, or if their company does not offer LTD they can buy their own policy outright. If somebody has to purchase their own policy it costs 2-3% of annual income normally. A policy cost is determined by age, income, occupation, gender, and health history.
Steve Crawford: “If somebody has to purchase their own policy it costs 2-3% of annual income normally. A policy cost is determined by age, income, occupation, gender, and health history.”
Dreaming of Baby: Excellent and that would be for the entire plan as opposed to a supplemental which would be cheaper correct?
Steve Crawford: Correct. Bottom line is with individual DI the price you purchase the policy at is locked in to age 65, so the younger you are when you buy it the more you save over your lifetime.
What does Disability Insurance cover?
Dreaming of Baby: What exactly does disability insurance cover?
Steve Crawford: It covers any sickness or injury that prevents you from performing the material and substantial duties of your occupation, there are many kinds of DI plans out there, but all the good ones use language like this.
Steve Crawford: Most people don’t realize that around 85% of disabilities are illness claims, and not accidents. Cancer, ALS, diabetes, and heart disease don’t care what you do for a living, and all of them will disable you. As medical technology advances, things that used to be a death sentence are now much more survivable, but they do result in your inability to bring home a paycheck for your family.
Dreaming of Baby: Does this mean a parent does not need to suffer a serious accident or something of the sort; even minor things that make you unable to perform your duties are covered?
Steve Crawford: Well, not so much on minor things. A long-term disability policy usually has a 90-day waiting period for benefits to kick in. So, anything that somebody recovers from inside of 90 days usually doesn’t result in a claim.
Steve Crawford: It is designed to maintain your lifestyle should you suffer a serious accident or illness that prevents you from being able to work. There are options available for partial disabilities as well, but that is nitty gritty details.
Dreaming of Baby: How long will a disability insurance pay out for once the 90-day wait elapses?
Steve Crawford: The most common benefit period in the industry is “To Age 65”, but that is changing now to “To Age 67”. There are options for 2 yrs, 5 yrs, 10yrs, and even lifetime benefits… but in my experience, almost everybody buys to 65/ 67. Insurance companies price it so that is the logical choice for a consumer.
Dreaming of Baby: If understand correctly then; if a parent to be (or parent) becomes disabled and unable to work they will still receive an income for the entirety of their working life if they choose that plan?
Steve Crawford: Correct, so long as they are still unable to perform the material and substantial duties of their occupation because of a sickness or accident. The “AVERAGE” duration of a disability is about 3.5 years.
Steve Crawford: However, the reason the average is 3.5 years is because most disabilities are either recovered from inside of a year, or because a person passes away relatively soon after a dreaded disease. If it is not recovered from inside of a year, it tends to be more permanent in nature and pay out until the end of the benefit period at 65/67.
Steve Crawford: So, if somebody was playing the odds, they could buy a 2 year benefit period and save a bunch of money… but they risk losing everything if it turns out to be a permanent disability and claims dollars stop after 2 years.
Dreaming of Baby: As an example, if John was in a bad car accident and is now unable to work but otherwise healthy; is this the kind of thing that would be covered? Taking paralysis as an example.
Steve Crawford: Sure, car accidents certainly cause a lot of disabilities. If it were paralysis the company would pay benefits from day 1 and not make him wait 90 days. There are clauses for things like that in a good policy.
Steve Crawford: If somebody suffered the loss of sight, speech, hearing, or the use of any two limbs they would get benefits immediately.
What happens if I change my job?
Dreaming of Baby: So it is definitely important to read the fine print. With regards to occupation, if a person buys a policy whilst working in an occupation that requires them to be mobile but later changes their job to a desk job and are able to perform that job, how does that work?
Steve Crawford: OK, that’s a great question. The real answer is it depends on the product you bought. I am kind of answering as if somebody bought a product from one of the top 10 companies selling today, and the consumer has one of their better products.
Steve Crawford: Occupation is typically defined as the occupation you were engaged in at the time of disability. So if you were in a job that required mobility, and were unable to travel anymore, that would be a material and substantial duty of your occupation.
Steve Crawford: “Occupation is typically defined as the occupation you were engaged in at the time of disability.”
Steve Crawford: If they owned an “own-occupation” policy they could collect their DI benefits, even if they made more money in a new job doing something completely different so long as they were unable to do the material and substantial duties of their previous occupation.
Dreaming of Baby: Ok, so the current job is always the one that is evaluated. On that note if I have a desk job but lose my legs, would I be covered or is it likely the insurance can avoid paying me since I am technically able to perform my duties?
Steve Crawford: Again, for your specific example that would be a “presumptive” claim, the loss of the use of any two limbs would pay day one benefits, even if you could still do everything else. Most claims are dreaded diseases like Cancer, heart disease, or ALS… there are also mental or nervous claims quite a bit.
Dreaming of Baby: Ok so let me rephrase that a little. If a disability does not impair the current employment but would prevent one from doing most normal jobs; would that disqualify them from a payout?
Steve Crawford: It’s always about the ability or inability to perform the material and substantial duties of your occupation. If you can still do all the material and substantial duties of your occupation, and don’t have any income loss as a result of the sickness or accident, then there isn’t a claim. I can’t really think of a scenario of a sickness or accident allowing somebody to do everything in their occupation that would disable them in most other occupations… Like I said, most claims are illness related… and an illness doesn’t really care what you do for a living, it affects everybody the same way.
Steve Crawford: I have heard thousands of people say to me, “If I can think, and I can type, then I am not disabled”. All I say to them is that they are absolutely wrong. When somebody is going through Chemotherapy, they just aren’t working.
Dreaming of Baby: That’s specifically what I was thinking of, many people especially parents want to know that they get what they pay for; scared of loopholes would be one way to phrase it.
Steve Crawford: I completely understand that thought process. Disability insurance is something most people only think about when they buy it, they want to buy it and forget about it, and hopefully never use it.
Steve Crawford: It is like anything else in this world, you are going to get what you pay for. If you want to have your income secured by a freebie from work, you shouldn’t get upset if it isn’t what you had hoped it would be during a claim. If you want to buy the cheapest available stuff on the market, it is going to have loopholes. If you want to take care of your family and make sure your income is protected in the most claims scenarios, I would suggest buying from one of the top companies out there.
Tax and Disability Insurance
Dreaming of Baby: Is the insurance bought outside of the company provided one tax deductible in any way?
Steve Crawford: No, unless you are a business owner it is not tax deductible, but that also means any benefits you get during a claim are received tax-free.
Dreaming of Baby: Can you elaborate on this?
Steve Crawford: An individual buying DI to protect their family has to pay for the policy with their own after-tax dollars, so any benefits they get from the policy are tax-free. A person who owns a business could write off the premiums, but benefits would be taxable during a claim.
Dreaming of Baby: So when I receive a payment from the insurance company no tax will be deducted from that income?
Steve Crawford: Correct. Unless your benefit was from a Group LTD plan that was paid for by your company.
What should I look out for in a Disability Insurance plan?
Dreaming of Baby: Unless I am a business owner then the situation is reversed and I should probably opt for a higher premium to cover my needed income after tax?
Steve Crawford: Yes, the most important parts of a DI plan are:
- Benefit Amount
- Definition of Total Disability
- Definition of Partial/Residual Disability
- Elimination Period (deductible
- Benefit Period
- Other Optional Riders
Those are the basics of a policy, and every company has different definitions for everything, this isn’t like buying term life insurance where there is only one way to collect. So you will get what you pay for.
Dreaming of Baby: Good to know. The Elimination Period – can you elaborate a bit on this?
Steve Crawford: Sure, so remember when we talked about the 90-waiting period? I was referring to the most common choice for elimination periods. Think of it as your deductible. There are other choices, but just like the benefit period, the companies set it up so the logical choice is 90 days. You can buy 30, 60, 90, 120, or 365 day elimination periods. The shorter the wait, the more the policy costs. If your company offers short-term disability, that usually covers the first 90 days.
Dreaming of Baby: Thanks for clarifying; in terms of the claims process, how does this usually work?
Steve Crawford: Every insurance company has a claims department, and when you file a claim you will be assigned a claims examiner. They will provide you with the paperwork to file a claim. The insurance company requires you to be under a doctor’s care during a claim, and your physician will have to fill out some paperwork. Most claims are relatively easy and painless, as most are fairly obvious. If you break both your legs, an X-ray can prove that easily. Some claims are more difficult to prove like mental and nervous claims or soft tissue damage. Usually, all comes down to the medical records.
Daniela: So such claims will be managed by looking into past medical records?
Steve Crawford: Yes, the insurance companies are unable to just take peoples word for things, if they did they would be out of business tomorrow unfortunately. People have to be under the care of a physician, and the claims determination will be arrived at by reviewing medical records. But like I said, most of the time it is easy to determine disability as most claims are illness related.
Dreaming of Baby: Thank you for that. It’s been a very productive and informative discussion and I wish to thank you for that. Before we close off, and based on your experience in this field, is there one last specific piece of advice that you would like to give to our readers?
Steve Crawford: “The best disability insurance policy is the one that is in-force at the time you become disabled.”
Steve Crawford: Sure, same advice I give everybody that I have ever talked to when they ask what is the best disability policy. The best disability insurance policy is the one that is in-force at the time you become disabled. I cannot begin to tell you how many people call us every day looking to buy disability insurance after they have just been diagnosed with something they know will disable them in the future. I have to tell them they are now uninsurable, you can’t buy homeowners insurance after your house burned down. You are never going to be healthier than you are today, and disability insurance is not something that is easy or guaranteed to get. So, don’t get caught up in a ton of details, just buy a policy from a reputable company in this business, and keep it in-force.
Dreaming of Baby: Great, thank you for what you have shared with us today!