May 11, 2015

Disability can be a real life changer.  I should know.  I’ve experienced it personally.

I was 32 years old, single, had been the top producer for my company in a sales force of nearly a hundred.  I had just purchased my first home, was maxing out my retirement contributions and still saving an additional 10% of my income.  I skied one week per year in Colorado and Utah, and another week vacationed in the Caribbean.  I had it made…and then it all changed.

I was diagnosed with an autoimmune disease followed shortly thereafter by a ski accident…..and a few months later… I was on Long Term Disability.

While I was fortunate to have Long Term Disability (LTD) insurance provided by my employer, it was not enough.  It provided 60% of my income which, after taxes, was not adequate to cover my mortgage and other expenses.  My medical expenses increased significantly, an experience shared by many people on disability.  I eventually had to sell my home.

Since that time, I’ve discovered quite a few things about disability and disability insurance.  Here are just a few:

Approximately 90% of disabilities are caused by illnesses rather than accidents.  It’s about things that happen when we live our lives:  You throw out your back, you have chemo or radiation treatments, or you have a heart attack.  Things happen.

One out of every four working adults will have reason to be out of work for three months or longer.  Use the PDQ calculator to get an approximate idea of your risk of disability.long-term-disability-insurance-quote

Disability payments are taxable when the employer is paying the premiums.  Payments are ordinarily not taxable if the individual has his or her own policy and paying the premiums personally.

So, is there a realistic solution?  Yes.  Having income protection—the right kind of income protection—can make all the difference in the world.  Here is an example of one of those solutions:

One of my family members purchased his own income protection; and when he found himself forced to leave his high-paying career due to a progressive chronic illness, he received 60% of his income—tax-free!  Additionally, he was approved for Social Security Disability Income which was added to his private disability income instead of being used to offset it.  So now he was receiving 60% of his previous income without being subject to income tax, plus his SSDI benefits.  His net income was approximately the same as when he was working.  Quite a difference, don’t you think?

While the loss of the second income in a non-special needs situation is traumatic, the loss of the primary or only source of income in a family with a special needs child is devastating if that income has not been protected.

Married couples with a special needs child often have only one significant source of income. One spouse may be the primary caregiver and sometimes working part-time or not at all outside the house. In single parent situations, the caregiver is also the working parent.

What would happen if the primary income provider became disabled and couldn’t work for a year or longer?  The duration of the average long-term disability claim is 31.2 months—approximately 2-1/2 years.

  • How long would your savings last?
  • Would you be able to continue to pay your mortgage and car payments?disability-insurance
  • For how long?
  • What changes would you need to make in your lifestyle?
  • Would you be able to continue paying the premiums for the life insurance you purchased to fund your child’s special needs trust?

Complete a Financial Security Plan to determine how you would fare if a disability were to occur.

To get additional information about disability insurance, check out Disability Insurance 101.  Once you’ve educated yourself on the basics of income protection, you’ll be able to make a more informed decision.  Consult with a disability insurance specialist to discover your options.

Marcott’s Moral:  Disability is not fun but it doesn’t have to be tragic.  Protect your income.