DI: When to get it and when to lose it

he best time to get a disability insurance income protection policy (or any other form of coverage) is just prior to a disability!

Seriously, even though that is not an inaccurate answer, the best time to get coverage is at the earliest possible moment when it is both financially feasible and practical, even though there may not be an obvious need at the moment. The only result of procrastination is that health and circumstances can change, affecting eligibility. Why, then, do breadwinners wait until it is too late?

It might be that some prospects, and even agents or advisors, don’t see the need or the urgency. Another reason might be that no one has told them they should have an income protection policy. Some may not know that this form of protection even existed, or they thought they were uninsurable. They could also have some false belief that they will never get disabled or that, even if they did, their employer or someone else will pay their expenses/wages.

Some might think one has to be a paraplegic to collect the monthly benefit, which isn’t true. Definitions for total disability vary, but the best one out of several variations will cover you if you’re unable to do the (material) duties of your occupation, even if you are working elsewhere, regardless of how much you earn.

The charts accompanying this article can defer some of these false beliefs. They statistically point out that bad things happen that can jeopardize earning an income, even at a young age.

Does the financial planner or agent have a responsibility to his or her client as far as the best time is concerned? You betcha! Should these professionals have realized that disability insurance is the cornerstone of financial planning and have recommended it? You betcha! Why is it, then, that disability insurance isn’t sold or presented more than the meager amount reported? Is it due to lack of product knowledge, just an oversight or something else entirely?

Overcoming coverage obstacles
In any event, the best time an individual should apply for this valuable form of coverage is, of course, at the earliest possible moment. Sooner is better, even if they can’t immediately afford the cost, which runs about 2% to 4% of income, depending on age, sex, occupation, benefit period and amount, and options. Applying for coverage at the earliest possible moment also ensures a better ratio between premium and potential benefits. The lowest cost per $100 per month of benefit is at the younger ages and for the longest benefit period.

If cost is a factor, what’s wrong with recommending a shorter initial benefit period, given the fact that most disabilities last between two and five years?

There are also other solutions for lowering the cost without reducing the benefit period, such as reducing the benefit amount. Remember that a half loaf of bread is better than none, and most carriers provide an option that allows more coverage to be purchased in the future, strictly based on financial underwriting, with no evidence of medical insurability required. This future increase option has some other benefits to the insured, as well, such as locking in the occupation classification.

What happens if someone wants the income protection coverage, but has already been turned down for any number of reasons and not necessarily due to health? Is the best time gone? Not if an agent knows where to go for assistance and a probable solution. There are brokers who specialize in hard-to-place situations, which can be caused by approximately 10 or so major reasons, including health, occupation and working abroad.

And when should the coverage be discontinued? Only when that person is either self-insured or has retired before the coverage terminates, which is usually at age 65. However, if the policyholder is still working, coverage can be kept to at least 75 and sometimes longer, depending on the carrier. If money becomes the issue for discontinuing, the policy doesn’t have to be dropped. Coverage can be reconfigured to create a lower benefit amount or a shorter benefit period. Either of these two solutions could lower the premium enough to keep the policy in force.



Larry Schneider is a DI specialist with more than 35 years experience 

One Response to “DI: When to get it and when to lose it”
  1. I could not agree with you more. I hate it when one of my clients think that Social Security is all the Disability insurance they need.

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