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Paycheck Protection – Are you Covered?

Paycheck Protection for High-Income Earners, Are You Covered?

Insurance is the last thing most people want to think about. Paycheck protection, more commonly known as disability insurance, is no different. Just dealing with the most common forms ofPaycheck Protection insurance can seem like a daunting task.

The more straightforward types of coverage such as home, auto, health, and life insurance all need to be addressed.  Adding a much more complex product, such as disability insurance, can be an overload for even the most financially savvy individual.

It can be easy to brush off disability insurance as a secondary or less than critical coverage. Unfortunately, most people don’t realize how reckless that type of thinking can be.

People overlook the most important asset they can insure, their ability to earn an income!

Yes, this is one of those “Aha!” moments.

No matter where you are in life; disability insurance is crucial for income replacement and paycheck protection.

If you’re young, your future earnings are all the more valuable.  Having more years to earn income means that you have more to lose should you miss extended time at work due to a sickness or injury.

If you’re closer to retirement, then you are in your peak earning years and are saving as much money as possible before you are no longer bringing in an income.  At this point, any missed work could have a catastrophic effect on your financial plan.

Let’s take a look at some of the various situations in which people may find themselves.

Average Income Earners

We typically classify average income earners as those making between $40,000 and $150,000.  People who make less than 40k often have trouble affording disability insurance premiums and those who make more than 150k are classified as “high-income” earners.

Average income earners have a huge potential exposure to a disability event.  They often can’t financially survive for more than a few months without a paycheck.  That is why it is so important for these people to make sure that they have the protection that they so desperately need.

Disability insurance plans, sometimes known as paycheck protection insurance, provide financial protection in the event of a temporary or permanent disability. These plans provide a percentage of your monthly income, for a specified period, while you rehabilitate.

Most group and individual disability insurance policies replace 60%-65% of your income up to a certain limit. While that might not sound like enough, keep in mind that unless your employer pays for your disability insurance, both private and group disability insurance coverage benefits are tax-free.

A proper long-term disability insurance policy truly is paycheck protection.  This means that it should be designed to last as long as your disability; all the way to retirement.  For most people, their disability insurance policy should last until age 65 or 67, the ages that they’re likely to retire.

Most people have their plan through their employer or have a personal plan. However, there is a massive number of workers who do not have any disability insurance outside of social security disability insurance coverage.

According to a 2013 Learnvest study, only 35% of workers aged 21-40 have disability insurance either through work or privately.  Considering that most Americans have less than $1000 saved for emergencies,  this is a startling situation.

Considering that the average disability lasts for almost three years, it is imperative that most people have some coverage, even if it does not fully replace their income.

After all, disability insurance isn’t inexpensive.  Expect to spend 2%-4% of your income on your individual disability insurance policy.

The older you are, the more your policy will cost.  The more white-collar your profession, the less your policy will cost.  Physicians have their own occupation classes and blue-collar careers tend to use products built specifically for their needs.  Disability insurance is highly specialized so make sure that you purchase your policy from an agent or agency that has expertise in this area.

Group policies are recommended if you have one available as the cost tends to be less than a privately-owned policy.  Group policies have several weaknesses, however; most notably a lack of portability, the potential for your company to cancel the policy, as well as some income restrictions.

High-Income Earners

Having a plan in place is great for most income earners, but what if you are a high-income earner making $150,000 or more? You could be underinsured and not even realize it!

Most financial advisors agree that someone will need to have at least 65% of their current monthly income to avoid financial hardship.

The first step is to make sure that you have disability insurance.  Having some kind of paycheck protection is important; however, having the right coverage is also important.

Make sure to conduct a policy review.  We do complimentary policy reviews so if you would like to take advantage of this service, fill out the quote form to the left and indicate “policy review” in the comments section.  We’ll send you an encrypted link that will allow you to upload your policy directly to our file management software.

Alternatively, you could contact us directly and set a time for us to review your existing coverage.

If you’re a DIY (do-it-yourself) type, there are a few steps that you can take to make sure that your policy does what you need it to do.

Check with your human resources department or take a look at your current policy and review these key points:

What is the maximum dollar benefit amount they will pay? Most cap out at around $10,000 per month.
What is the maximum % they will pay out based on your monthly salary?
Will they calculate your disability benefit based on your base salary alone?

These are all very important questions for the high income earner.  A hard cap- such as the 10k example- really restricts the ability for someone making a substantial income to reach the 65% threshold discussed earlier.

The percentage of salary is important, however, many group plans will be adequate in this regard.

The last question is a major source of people being underinsured.  Anyone on commission or who relies heavily on a bonus will be drastically lacking in coverage should a sickness or injury prevent them from coming to work for an extended period of time.

Make sure that your existing plan, group or individual, is built to cover all of your income- not just your salary.

Remember, if you have an employer-paid plan, you will have to pay taxes on the benefit amount, which will further reduce the benefit you receive.

Disability Insurance Plans for High Income Earners 

Whether you have a group plan or a personal plan, you probably need higher limit amounts. Highincomeprotection.com offers plans that fill this need.

Those that earn less than 400k annually can probably be fully covered with an individual plan or a combination of group and individual.

Most individual plans will have monthly benefit limits of $20,000.  Some offer combined limits (existing group with individual) of $30,000 per month. For most individuals, this will be an acceptable level of coverage.

The high-income earner may need even more disability income protection.

Personal Supplemental Disability Insurance Plans

Supplemental plans are built for those with substantial incomes.  When group coverage and traditional individual disability insurance don’t provide enough coverage, the high-income professional can purchase a supplemental disability insurance policy.

These plans have the following key features:

Monthly benefit amounts of up to $250,000
Coverage up to 65% yearly income vs base salary
100% Portable
Consideration for health impairments, high-risk occupation, high-risk avocation
5 year benefit period
Choose from 30,60,90,120 day elimination periods
Can be used as primary plan (although it often makes sense to secure individual or group insurance prior to utilizing a supplemental plan)

Lump sum payout rider of up to 5X salary
Cost of living increase rider

These same plans can also be used in most business environments to cover:

Loan/lease indemnification
Buy/sell agreements and disability buy-out
Key person disability
Benefits for key executives/employees


Protect your income with a comprehensive disability insurance plan. If your current plan does not meet your financial needs or you would like to consider a personal disability insurance plan for paycheck protection, please let us know.

As mentioned earlier, we offer complimentary reviews of your existing disability insurance and while it rarely makes sense to replace an existing policy, knowing exactly what you own and how your paycheck is protected is valuable information.

We can also consider adding coverage to an existing plan if you require or desire additional benefits.

Contact us today for a confidential discussion about your needs. Our toll-free number is 888-636-2310.

About Raymer Malone, CFP®
About Raymer Malone, CFP®

Raymer Malone, CFP® is principal and owner of www.highincomeprotection.com, an online insurance agency that specializes in disability insurance.  Ray has been in financial services since 1998 and has been life and health licensed since 2004. He started his company to help consumers get access to disability insurance products online and to provide them with the proper direction in selecting a policy. Ray resides in Lake Tahoe, NV with his wife and two children.

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