As a disability insurance website, it might seem strange to advocate that people not purchase disability insurance.
The fact is, for some people, there is no need to purchase disability insurance. There is a moderate-sized part of the population of the United States for whom income protection insurance isn’t necessary.
As with most of the posts here, we’re talking about long-term disability insurance, the kind that can last until your retirement age.
To see if you’re one of the lucky individuals who doesn’t necessarily need to purchase disability insurance online or anywhere, read on.
① Your Group Coverage Is Adequate
If you work for a large corporation, you may have long-term disability insurance.
As a benefit to keep their employees happy, many businesses that are large enough (normally at least 100 employees but often much larger) will add long-term disability insurance to the menu of benefits offered.
In some cases, the employer pays for some or all of the employees’ disability insurance. Other times, the employee is responsible for purchasing disability insurance for themselves but can do so through the group policy.
Group disability insurance has several advantages.
For one, it is normally less expensive than similar individual disability insurance. Cost is a big driver, here, and as long as the benefits offered by the group policy can support your lifestyle should you become disabled, then it may suffice.
Second, if you have a pre-existing condition, your group policy may eventually cover it in some form. An individual disability insurance policy will likely exclude (meaning you can’t make a claim) any health conditions you have when you purchase the policy.
Last, it’s easy! Group doesn’t normally have the medical exam, requests for financials, or any of the other underwriting required by a traditional individual disability insurance plan.
If you have a group policy available to you, it may not be necessary to purchase disability insurance in the individual market.
There are a few issues with relying on group as your only form of disability coverage.
If your employer pays the premiums, then the benefits are taxable. Individual disability insurance benefits are almost always tax-free.
The Green Ceiling
Your group coverage likely has limitations. While not important for everyone, if you’re a high earner or rely on commissions or bonus, you need to verify your coverage will protect a large percentage of your income should you be unable to work due to sickness or injury. Caps on group coverage can leave a high-earner underinsured.
You Leave, You Lose
Some group coverage is portable, meaning you can take it with you if you leave and convert the policy to an individual disability insurance policy.
However, this is not normally the case. Should you leave your job to strike out on your own or go to a much smaller company, there is a high likelihood you’ll be uninsured, unless you decide to purchase disability insurance on the individual market.
The name of this site should indicate the types of risks we insure. High-income earners should purchase disability insurance (income protection) to maintain their financial situation should they be unable to work for an extended period due to sickness or injury.
But what if you’re all set?
Meaning, what if you have enough money that you could comfortably retire today and not have it affect your lifestyle?
Disability insurance is for people who, if they lost their income, would suffer financially. If that’s not you, then you may not need disability insurance. If your income is no longer necessary, then you shouldn’t have to protect it.
Even if you’re not independently wealthy, if you derive a lot of your income from passive sources that wouldn’t be disrupted by a disability, then you may not need to purchase disability insurance.
This circumstance probably fits a very small portion of the general population, but it does exist.
Even people with a great financial situation purchase disability insurance. This is especially true for business owner disability insurance.
Key person coverage, self-employed disability insurance, disability buy sell, and business overhead coverage are valuable forms of disability insurance that can help protect against losses due to sickness or injury.
Professional sports teams purchase disability insurance on their players, and burgeoning stars even purchase disability insurance on themselves.
Even those with the financial wherewithal to hang it up and retire purchase disability insurance to transfer a loss of earnings or business value from themselves to an insurance company.
③You’re Retired or Unemployed
If you’re not working, wanting to purchase disability insurance may be desirable, but you’re unlikely to find it.
Keep in mind, disability insurance coverage exists to protect against a loss of income should you be unable to work due to sickness or injury.
When referring to income, these policies are referencing earned income, not income from your pension or a severance. Since passive income is unlikely to be affected if you became disabled, disability insurance is not going to cover that type of income.
If you’re retired and it is much more important to protect your assets than your income, purchasing long-term care insurance may make sense.
We are experts in income protection coverage, such as disability insurance and term insurance, so we don’t offer long-term care insurance to the general public. If long-term care insurance is something you feel would benefit you, reach out to the experts at http://longtermcareinsurancepartner.com/about-us for help.
Expertise and specialization rarely cover more than one or two niches, so we recommend you work with someone who isn’t a jack of all trades and a master of none in securing insurance coverage.
If you’re unemployed but actively seeking work, you may be able to purchase disability insurance coverage.
Also, if you’ve struck out on your own and now you’re looking for self-employed disability insurance, we can help. You may not be able to purchase as much coverage as you would like to start, but several disability insurance companies offer policies to those who have started their own business.
You’re also much more likely to get a better offer if you’re starting a business in the same field, or even better, you’re basically doing the same job as an independent contractor. In some instances, you may even be able to use a substantial portion of your previous w2 earnings to justify coverage.
First, let’s make sure you’re uninsurable before we go down this road.
I have had several clients that they can’t purchase disability insurance because of health conditions such as diabetes or high blood pressure.
Don’t think you are uninsurable; speak to an expert to know if that’s really the case.
We also encounter people who visit this website who want a specific condition covered, so they would like to purchase disability insurance to protect themselves.
This may be possible if you don’t have that specific health condition or have upcoming surgery/treatment on what you’re looking to insure.
Unfortunately, many people wait until it’s too late to purchase coverage. Once you have that knee replacement scheduled or you beat cancer and want to get coverage, it is going to be challenging to purchase disability insurance.
Even if you can secure coverage in the above example, the health condition that drove you to look for disability insurance will likely be excluded from any claims. Individual disability insurance will not pay on pre-existing conditions or on recent illnesses/accidents.
In addition to health, you may also be unable to buy disability insurance due to your age or your occupation. We do have a few policies that cover people into their 70s and policies that cover almost any occupation, even if you’ve been told otherwise.
Reach out to us if you’re in one of these situations. We can help.
If you are uninsurable, you may have options, depending on your situation.
Uninsurable due to health
First question, have you been told by a disability company that you’re completely uninsurable or a condition that you want covered won’t be.
For the former, you may consider a graded disability insurance policy that offers reduced coverage at a higher price. While not a perfect solution, a graded plan will help replace some income due to disability and take a lot of health conditions that traditional individual disability insurance does not.
The other option is to look at accident-only disability insurance. Only 10% of disabilities are caused by accidents, yet if you’re one of the unlucky one in 10 to suffer a disabling injury, these policies can be valuable.
The good news is accident-only disability insurance doesn’t require health underwriting, and it is much less expensive than traditional coverage.
If a condition you want covered is excluded, then there are some other questions. If what you want covered is likely to create an immediate claim, then there are not many options. Healthy pregnancies and upcoming surgeries where you’ll be out of work are two examples of this.
However, if a specific health condition you want covered is excluded due to previous health history, then you may consider taking the policy.
Out of the hundred health ailments and injuries that can prevent you from working, you have one.
Why take the chance on the other 99?
While it is never preferable to have an exclusion on your disability insurance policy, you still own a policy that covers the vast majority of situations that can keep you from working and earning money.
Uninsurable due to age
If you’re unable to purchase disability insurance due to age, then you may be applying with the wrong carriers.
Several companies have cut-offs for new coverage at age 60. A few will go up to age 64-65, but there are still options for people in their early 70s.
Once you get into your mid-70s, you will not find new disability insurance available to you (your existing policy may be renewable into your 70s, though).
Uninsurable due to occupation
If you can’t be covered due to having an occupation with a high incidence of claim, such as being a bartender or a musician, you still have options.
Specialty carriers, normally coverholders for Lloyd’s of London in the United States, insure all types of difficult to cover occupations, from chiropractors to athletes.
As mentioned, accident only disability insurance may be an option as well. There are some exclusions on those policies (racecar driving for example), but they may be a fit, depending on what you do for a living.
Last, you could consider a non-occupation disability insurance policy. These policies can be valuable if you have workman’s comp or a profession that you’re unlikely to be injured while doing (like our musician example) because they don’t cover disabilities that occur while on the job.
If you’re a coal miner who wants to purchase disability insurance to protect against lung cancer, this would not be the type of policy to buy.
However, if you’re a musician that wants to protect your income from cancer or heart attack, then pursuing a non-occupation based policy may be attractive.
⑤ You’re an Invincible Superhero
Ok…tongue in cheek, but many people think a sickness or injury that prevents them from working will never happen to them.
Most of these people are right. Eating well, exercising, and staying away from dangerous hobbies certainly reduces your chances of becoming disabled.
As does reducing alcohol intake and avoiding tobacco.
I won’t bore you with the statistics. You can read them yourself, but for the 1 in 4 of today’s 20-year-olds who will become disabled before they retire, losing income for an extended period of time is a reality.
The average claim is 31-34 months.
If you can live without a paycheck for that long, live a healthy lifestyle, have genetics on your side, and avoid dangerous activities, then you may be ok.
If you’d rather protect your income for several years or until retirement because you’re not invincible and you know that stuff happens, then purchase disability insurance.
There are many reasons not to purchase disability insurance, just like there are many reasons in its favor.
Peoples’ situations are all different. There is no right or wrong.
Just like some people are naturally conservative investors and others are willing to take more risks, some people purchase disability insurance and others don’t.
Protecting your income from injury and illness is an important part of your overall financial plan.
Whether you choose to take that risk is up to you.
If you’d like to purchase disability insurance, complete the quote form on the left, and we’ll be in touch. You can also contact us, and we’ll be happy to help.