Back to Basics: The Most Important Protection You Need Now


As we try to get our finances under control in this frantic market, experts say long-term disability insurance can be more important than saving for a rainy day or retirement, especially for young, single workers. No one wants to believe they'll ever become disabled, let alone disabled for an extended period of time. But according to the Insurance Information Institute (III), at age 35, people have a 45% chance of being disabled for 90 days or longer before their 65th birthday. And among those people, there's a 70% chance of being disabled for another two years.

Bottom line: If you become disabled and you can't work, you can't make money. Being disabled doesn't just mean breaking your arms. It can also mean a psychological or emotional condition that prevents you from working.

Don't fall behind if you can help it. Here's what you need to know.

As far as insurance companies and benefit providers go, there's no single definition for the term "disability." To some it means a condition preventing one from performing his or her job. To others it may mean not being able to do any job. This can affect whether or not one's disability claim is approved. What's more is, "a lot of plans will, after a period of time, say two or three years, change the term of disability," says Steve Weisbart, an economist at III. Typically the description of "disability" changes to become more challenging for the individual to qualify. "[Insurance companies] expect that if it's at all possible for you to make a recovery you should do that…instead of watching soap operas all day," says Weisbart. Not to mention, it also gets insurance companies off the hook from continuing to pay you.

"Anyone who has to support another and or has their own bills and does not have another independent source of income needs disability insurance," says disability attorney Troy Rosasco of the New York firm Turley, Redmond & Rosasco.

Experts say businesses with 50 or more workers tend to sponsor a plan that's either 100% or partly paid for by the employer. Popular group insurance carriers include Unum, Cigna, Metlife and Prudential. Check with their human resources department for more.

Others can buy directly from private insurance carriers. The Gaurdian, Mass Mutual and Northwestern Mutual offer various, personalized plans.

That depends largely on the type of disability insurance. A 2004 III survey found the average annual premium for a group plan to be roughly $218/year. That's less than $20 per month. "Typically a rule of thumb is a half a percent of payroll," says George Faulkner, principal at Mercer Health and Benefits. So, if one earns $50,000 a year, the insurance premium would be around $250 a year. For individual plans, the cost is significantly higher and is based on a person's age, health and lifestyle.

Generally, group policies pay up to 60-67% of your annual base income, not including bonuses. There may be a monthly cap, as well. Furthermore, if the employee pays the entire premium, the payout is not taxed. If the employer helps to pay for the plan, the payout is taxed. Individual plans which are more popular with high net-worth individuals, tend to have no caps on the payout. So, someone earning $100,000 base salary with a $400,000 annual bonus is better off getting an individual disability insurance plan, says Rosasco, since it may take into account the person's total earnings and better compensate them in case of an emergency.

Read the definition of disability in your insurance policy closely. Make sure you qualify.
Work closely with your doctor to provide the proper medical evidence to prove you cannot perform yours and/or any occupation.
Keep in mind: Self-reported symptoms like fatigue and pain don't fly with insurance providers because they are hard to measure. You'll need a stronger argument.

Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.

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