This won’t hurt and won’t take long. Based on my experience with Financial Advisors and their employers around the country, I predict you will be dismayed if you read your group disability policy. Why? Because the disability benefits you might be entitled to under your corporate disability policy could be far less than you think.

While in your working years, the odds are far higher that you will become disabled as opposed to dropping dead. According to the Social Security Administration, “studies show that just over one in four of today's 20-year-olds will become disabled before reaching age 67.” This is the reason to be concerned about your disability insurance. [1]

To be considered for disability payments, commercial carriers generally state that your disability must last longer than three months and be projected to last for a minimum of one year or result in your death within a year.

Over the last eighteen months, I have asked many groups of Financial Advisors about their disability insurance. While the following Q & A isn’t verbatim, it replicates the question and answer sessions which then occurred when I probed.

Q. “Let me ask everyone something. Do you have disability insurance from your employer?”

A. “Sure. Absolutely.”

Q. “What does it cover?”

A. “Well, since it’s disability insurance it pays out if I become disabled.”

Q. “Pays for what?”

A. “You know, disability stuff.”

Q. “Disability stuff is kind of a broad category. Does your policy define disability as being unable to perform your ‘own profession’?”

A. “Uh, I don’t really know.”

Q. “OK. What about this, how much money will you receive every month if you become disabled and for how long?”          

A. “I guess it’s sort of my salary and probably goes on as long as I am disabled or something. I think.”

Prior to meeting with groups from several different companies, I had read a copy of the group disability policies provided by their employer, and I did not find any of them comprehensive. I mentioned to each group that the policy definition of disability in their respective policies was very narrow. Even if you could not perform your “own profession,” they did not pay benefits. They only paid if your disability prevented you from doing any work. The monthly payment was less than 50% of their monthly salary, and payments ended after two years. Everyone expressed great surprise.  

The reason many of us assume our disability policy will pay out if we become disabled is we conflate the basic premise of life insurance with the basic premise of disability insurance. If you die, your life insurance carrier will pay out the face amount of your policy to your beneficiary. Hence, life insurance is easy to understand. Either you are dead, or you are not. There are no questions from the insurance carrier such as “How dead are you?”

Disability is very different because disability is defined in different ways. Your disability carrier will ask questions to determine, “How disabled are you? Are you partially disabled or completely disabled?” You want to know if your carrier will pay benefits if you are only partially disabled. Further, you want to know if your policy will pay benefits if you are disabled from performing your “own profession.” Depending on the policy, your carrier may not pay benefits under that scenario. They will only pay benefits if you cannot perform any work.

 To guard against being compelled to spend lots of your own money to maintain yourself, I urge you to read your policy and learn about the benefits it will provide if you ever need them. For your own peace of mind and to protect the people you love, purchase the best possible coverage you can afford.

 

To learn more about this topic, register for our Capitalizing on the Insurance Opportunity course. 

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Resources:

[1] https://www.ssa.gov/planners/disability/index.html

 

Contributing Writer: Subject Matter Expert Charles McCain