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Quick Facts on Disability Insurance
Barrett Niehus
Quick Facts About Disability Insurance
§The sole purpose of individual disability insurance is to replace your after-tax
income in the event of an accident or illness. These policies do not provide
protection from medical expenses or recovery of damages for “pain and suffering”.
§Since the benefit payments are designed to be income tax-free, insurance coverage
in the amount of 2/3 of your salary is roughly equivalent replacing your net
take-home pay. This is usually the maximum amount of insurance that you can
purchase.
§Be prepared to show the insurance company a pay-stub is you are salaried or
an income tax return if you are self-employed to prove the amount of insurable
income.
§If you are self-employed, you can only insure the amount of net income that
you reported on your tax return, even though your actual earnings might be much
higher. In this case, you might want to supplement your insurance with “business
overhead coverage” that does not depend on net income.
§Expect the insurance policy to exclude or limit coverage for pre-existing conditions.
If you have a bad knee, for example, expect that your policy might have a 5
year rider on claims due to knee injuries.
§Most policies are issued for a term of five years of coverage, although you
can buy a longer or shorter benefit amount.
§Most policies have a 90 day waiting period before you can begin collecting
a benefit, but you can buy longer or shorter waiting periods.
§Most policies integrate with Social Security disability insurance. This means
that the total amount of the benefit you collect will not exceed your net after-tax
income before you were disabled.
§Most policies may be continued year after year until you retire. But the average
life of a disability insurance policy is about 5 years.
§The average time required for an insurer to review an application is about
3 weeks. The insurer may request copies of medical and financial records.
§Applications are still submitted on paper; no online enrollment system is available.
§Expect the premium cost to be about 2% of your salary if you have a “desk job”
and about 4% of your salary if you work with your hands. Of course, this is
a very rough guideline, and the actual cost will depend on a greater number
of individual factors.
§When a policy is issued, you have at least 10 days to review all of the details
and cancel the coverage if you are not completely satisfied. It may be useful
to have an independent financial adviser review the new policy during this period.
§Assuming that you keep disability insurance for the balance of your working
career, the probability of suffering a loss of income due to accident or illness
sufficient to trigger a claim under your policy is about 1 in 4.
§If you become disabled, you should consult with an attorney who specialized
in disability insurance claims before filing a claim with the insurer. This
may help avoid delays and disputes regarding the claim.
About the Author
Tony Novak, MBA, MT, is a financial adviser based in Narberth, Pennsylvania.
He is editor/publisher of “Tax and Benefit News” and moderator of the tax forum
for financial planners at “Financial Planning Interactive”. He is available
by telephone at 1-877-529-7435 to address public inquiries on tax and benefit
planning issues free of charge through OnlineAdviser service sponsored by www.MedSave.com
and www.FreedomBenefits.com.
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International Travel and Health Insurance
David M. Schmader
Embarking on Your Dream Vacation
Are your Plans Complete?
Your bags are packed, passport and papers in order and you couldn’t be in a
higher state of excitement preparing for travel to that wonderful, exotic location.
This is the vacation you have planned it seems forever. As you sit on the plane,
you and your partner discuss for the hundredth time the scuba diving you will
do, the awesome rock climbing and hikes into the rain forest. Everything is
perfect!
Life seldom gets better than this.
Despite all the excitement of travel, Americans do have some concerns.
According to a survey by the Chubb Group, more than 70% of Americans surveyed
said their greatest concern when traveling is suffering a medical emergency...more
than double the fear of being mugged (30.7%), three times the fear of being
injured in a terrorist attack (23.4%).
What happens if a medical emergency arises when traveling overseas?
Many people assume that while they are out of the U.S. or Canada they will be
covered by their standard medical plan. However, most traditional health insurance
plans are not designed for international travel.
According to the U.S. Department of Commerce, approximately 27 million travelers
board U.S. airlines for overseas destinations and almost 26 million foreign
travelers come to the U.S. each year. However, many are not prepared for a medical
emergency abroad.
Most traditional health insurance plans would not cover an unexpected illness
or injury during international travel. But travelers with international medical
insurance would have protection for scenarios ranging from a local ambulance
trip to an emergency evacuation for care at the nearest qualified medical facility.
Some even offer repatriation flights out of the country where the traveler is
located back to the US.
Available plans can cover individuals or groups for specific periods of time
abroad and can be in effect should they be stationed abroad for an extended
period of time. There are policies for corporations to insure their personnel,
plans to cover missionaries who are on an outreach program and for those participating
in extreme sports. International travel medical insurance should be considered
for anyone traveling or living abroad.
©David M. Schmader, Solon, Ohio January, 2005
www.brownschmader.com
About the Author
David Schmader is an independent broker agent located in the Cleveland Ohio suburb of Solon, Ohio. With over 25 years of corporate finance experience he specializes in serving the individual, professional and small business markets.
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