Disability Insurance

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Disability Insurance

• Financial Planning
• Mr. Yates

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Today we will

• Compare life insurance with long term disability
  insurance.
• Evaluate advantages and disadvantages of various
  disability insurance plan options.
• Identify important features of disability
  insurance coverage.

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What is Disability Insurance?

• Disability insurance is essentially income
  replacement insurance.
• It covers working people from financial loss
  should they be unable to work due to illness or
  injury.
• The best-known type of disability insurance is
  probably workers compensation
• it covers loss of earnings and medical payments
  for injuries that occur on the job, or illnesses
  that are caused by the job or the work
  environment.
• Social Security also provides limited disability
  insurance for those people who are completely
  disabled and unable to work at all.

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Who needs that?

• We can probably think of many injuries that can
  occur on the job.
• In fact we may even know a friend or family
  member that was injured, but what types of
  illnesses could occur on the job?

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Private Coverage

• For those people not eligible for workers
  compensation or Social Security, insurance
  companies offer private disability insurance
  coverage.
• These "supplemental" policies generally cover any
  long-term illness or injury, whether work-related
  or not, to the extent that they keep the insured
  from working (or from working at his/her original
  job).
• Many people neglect to purchase disability
  insurance.
• 70 of the people in the U.S. have private health
  insurance coverage and purchase life insurance,
• only 40 have any private disability insurance
  (and only 25 have long-term disability
  coverage).

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The Costs!

• The financial consequences of disability can be
  devastating imagine losing your job (or at least
  your income, if your employer allows you to go on
  leave) and having extraordinary medical expenses
  at the same time.
• Furthermore, statistics show that 1 in 5 people
  will suffer a disability during prime working
  years (35 to 65), and 1 in 7 will be disabled for
  more than 5 years.
• Given these facts, disability insurance must be
  regarded as an essential part of risk management
  and personal financial planning.

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Example 1

• Joe S. has his annual meeting with his insurance
  agent.
• Joe already has good life and health insurance
  coverage. The insurance agent recommends
  disability insurance.

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Joe Says,

• Why bother spending money on something that may
  never happen. I'm not in a dangerous profession,
  I've never had a car accident, and my favorite
  sport is fishing. What I do know is that I will
  certainly die someday. Let's increase my life
  insurance policy instead.

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Response to Joe?

• Remember..
• 1 in 5 people will become disabled between the
  ages of 35 and 65.
• 1 in 7 will be disabled for at least 5 years
  before reaching age 65.

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Examine some more cases

• We are stopping now for you to complete Worksheet
  19 from my website
• We will come back and review your answers before
  class ends and move on to something else!

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Answers to worksheet 19

• Insurance companies look for ways to cut down
  their costs. A policy with decreasing benefits
  due would limit the exposure of the insurance
  company. If the insured goes back to some kind of
  work, the insurance company doesn't have to pay
  out as much.
• Ms. X would not be eligible for Work. Comp. even
  though she was on the way to work when the
  accident happened.
• Corrine needs the traditional type of policy
  because, although she can still work, she will
  lose the high income she received as a performer.

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Answers continued

• 4. This gives the insured an economic incentive
  to go back to work.
• 5. This type of policy is cheaper because it only
  pays out in extreme cases of total disability.

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More

• Only 40 of U.S. workers have any kind of
  disability insurance and only 25 of U.S. workers
  have long-term disability coverage. In contrast,
  about 70 have life insurance policies.
• Why do you think this is so?
• Life insurance is cheaper. More people sell life
  insurance. Many people don't realize the
  statistical probability of being disabled.

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Research Assignment

• Look on the Internet and get quotes for
  disability insurance for a wage earner who makes
  50,000 a year and for one who makes 100,000.
• Make a chart of features, benefits, costs, etc.
  that compares the two.
• Find quotes that are instant!!