John Ryan

Thanks, Liz.

Well, disability insurance is designed to replace a person's income if they get sick or hurt and can't work. Pays the bills, keeps them in their lifestyle. Very important. Life insurance does that. If someone dies, it provides a benefit. They can invest the proceeds and live off the proceeds.

Disability insurance provides the same kind of cash flow if someone's disabled and cannot work at their job.

It is true. You have to be careful of the statistics, though. Some of the statistics that get used are like Social Security statistics and which is all walks of life. If we're dealing with more white collar, predominantly white collar risks, it's less frequent, but it's still more likely to occur than death at any age, actually.

That's right.

It usually will cover the employee in their job, usually for a certain period of time at least, if they should get sick or become unable to perform the important duties of that job. And benefits usually begin after, say, a 90-day waiting period. And then it pays a certain percentage income replacements.

of their income for a set period of time, usually to age 65, if they had a real long-term disability.

Yeah. Well, short-term picks up right away. It can pick up as early as a single day for an accident and a week for a sickness. It helps those who don't have some income saved for that buffer for that 90 days. And so it would provide a weekly benefit for that 90-day period until the long-term disability benefits could kick in.

Yeah. So security normal retirement age is usually the duration for an employee or a provided plan.

Well, yeah. As you would imagine, if I have a disability policy that's going to insure me, if I can't be, for instance, an insurance broker, specifically, even if I could go and do some other line of work, they're still going to pay me my benefit to age 65 versus a policy that says, John, you have to be unable to do any job for wage or profit before we'll pay you a benefit.

You could see how the two are vastly different. One would cost more than the other because the risk is higher to the insurance company. But there are about six different definitions of disability in the disability world, all the way from social security, which is the harshest

least favorable up to the best individual policies on the marketplace have the most precise definition, which favors the insured, obviously costs more, but many insurers are willing to pay it because of the advantage of that precise treatment of their sickness or injury.

Well, it's if you get sick or hurt on the job, the state can provide you some relief in the form of indemnities, disability payments. It's only related to on-the-job illnesses or injuries. How much one would receive as a percentage of income, I'm not sure.

It is. It's very hard to get. Social Security usually favors the person that is leased from well-off, I should say. So typically white collar employees and owners are going to be last in line when it comes to qualifying for those kinds of benefits. They usually take care of the less well-off first is typically how that works.

And as far as the employer policy, it will offset for benefits that are received from social security. But since it's such a rare occurrence, there usually is not an offset.

No, it does not. It is only effective when you work for your employer. And usually the work requirement is at least a 30 hour work week. If you leave your employer, you almost always lose your coverage. Hopefully you're going to work for another employer that has similar coverage.

But the lack of portability is also a reason why many will buy an individual privately owned policy as a supplement to the employer plan. And those policies are portable and can be added to.

It's almost always underwritten. One of the beauties of employer plans, and we really like employer plans, is that it's usually no questions asked. It's a guaranteed issue. As soon as you become employed, you go down to the human resources office and sign a few papers and you're covered immediately. Now there is a preexisting conditions clause, but there's no exam, no lab work, no medicals.

Within individual policy, it's fully underwritten. So there'll be a formal application. They may request medical records. They may send a nurse to your home or your work to do your lab work. There's a medication search that they do. The underwriting for individual disability insurance is the most rigorous there is when it comes to buying a policy like this.

Yes.

There is a database that like they do for your driving record, but there's also a medication database that they go to.

Yeah, you bet.

It is. It's not as popular a coverage as you would think. And I don't usually recommend it because I think the dollars are better spent maybe looking at a private disability policy to supplement the employer plan. I believe the emphasis should be on the catastrophic, the loss that you just can't sustain, can't tolerate, which would be the long-term loss. But the AFLAC-type coverages...

It's basically, as they say in the ad, gap coverage. There might be something higher deductible. There may be certain conditions that are not covered by your basic employer plan that the supplemental hospitalization plan can pick up.

It'll cover those expenses that your basic health insurance does not cover.

That's right. And some hospitalization plans are accident only, which is much less expensive. The perception is that if I get disabled, it's probably going to be an accident. So they'll get an accident only hospital indemnity program. So there's two types of supplements to the basic medical program that an employer may provide.

Right. And those critical illnesses are illnesses like cancer, stroke, heart attack, diabetes, et cetera. And critical illness insurance can be easier to qualify for than insurance. a full coverage private disability program. So for someone who has difficulty getting that type of insurance, a critical illness policy can be a good backup plan.

Right.

Normally it can be a lump sum or an installment payment. Lump sums can be as high as $150,000 for cancer, maybe even higher. You do have options when you buy it. For additional premiums, you can get a higher benefit if you'd like. So you can tailor make each policy based on what your budget is. And what kind of condition is most important to you to ensure?

Yes, that's right. Okay.

No, if you already have the condition, it's too late, which is why it's important to get it while you're younger and before any serious problems surface.

Well, there are rules of thumb as to what's reasonable expense. For instance, for an individual disability policy, you generally try to keep the cost between two and 3% of the income that you're insuring.

Yeah. Women sometimes can pay upwards of 4% because the industry perceives women to be a higher risk. But if you're buying individual disability insurance to supplement the employer plan, you're probably looking at about 1% of your income. So someone making 100,000 will spend about 1,000 a year for a good supplemental plan.

I wish you didn't ask that question.

Let's just keep it high level and say that they have a tendency to have more frequent claims and longer lasting.

Exactly.

Well, yeah, someone who doesn't. If they ask themselves the question, if something happens to my income, who does it impact negatively? And if the answer is I can lose my income, but still maintain my financial responsibilities and still support the financial plans that I've outlined with my advisor, and the plan doesn't come crashing down, then they probably don't need the insurance.

But to the extent If you crash test your financial plan and it looks like, well, you might be able to get away with three years, but then after that, things really start to fall apart. Then you're looking at the need for some level of coverage.

Right.

Well, thank you, Liz. And nice to connect with you again. Appreciate it.