Posts Tagged ‘social security disability insurance’

Disability Insurance Isn’t Sexy!

Friday, May 18th, 2012

 

 

We are constantly bombarded with stats about dwindling Social Security funds; especially as they relate to retirement – but what about disability? Every bit as important, disability funding is more relevant for working people because it is a benefit that may help you now.

 

According to statistics sited in National Underwriter Magazine, the year end Federal Disability Trust Fund balance for 2011 was $154 billion in assets, down 15% from last year. Funded by a 1.51% payroll tax, the total amount generated in 2011 was $109 billion, which was down 19% from 2010.

 

These numbers suggest the fund may be depleted as early as 2016, two years earlier than previously projected. Adequate funding is anything but reliable in the long term.

 

More Hurdles to Consider

 

Funding issues aside, if you avoid insuring your family’s income because you can file for and receive benefits, think again.

 

Social Security Disability Insurance is a dicey issue at best. Only 35% of SSDI applicants are approved for benefits on their initial application and an additional 10% are approved after appeal. Translation: over half of all SSDI applicants are denied coverage.

 

Part of the reason for such a high denial rate is the SSDI definition of disability is often more stringent than that of a commercial insurance company. SSDI defines disability as the inability to perform a job due to a medical condition. Conversely, many commercial insurance contracts define disability as the inability to perform the job for which you have been trained or educated to perform.

 

Think about that a moment…

 

Take for example an electrician that is trained to work on business and/or residential electrical systems. If said electrician has a back injury that renders him incapable of physically demanding work that would be required of an electrician, he would most likely qualify for benefits under a commercial disability. That same electrician will most likely not qualify under SSDI if he would still be able to perform another type of work, such as answering telephones.

 

These defining terms can often be the difference between receiving benefits and not receiving them. Bearing this information in mind, it is scary to think of the ramifications attached to the dismissal of addressing these issues. Why then, do so many of us neglect to protect our family?

 

The Cost of Complacency

 

The lack of appropriate planning usually stems from several things. Exasperation at the thought of having to deal with yet another thing definitely plays into it. All we want to do when we get home from work is tune out and relax, right? The last thing on our minds is contemplating the pros and cons of disability insurance. Cost, like with anything else, plays a big role too. Yet cost, in this case, has to do with your family’s security.

 

The cost of protection may be more than you want to spend on the surface, but the cost of complacency in the event the unthinkable becomes reality, can be devastating. We all think it won’t happen to us, but the statistics tell a completely different story.

 

Here are some eye opening stats related to disability and the workforce:

 

1. A 35 year old has a 50% chance of a disability lasting 90 days or longer before turning 65.

 

2. Most people in the US are better prepared for death than a disability even though chances are 3 to 5 times greater that a disability will occur (based on age).

 

3. About 1 in 7 people between ages 35 and 65 can expect to be disabled for 5 years or longer.

 

4. About 110 million people have NO long term disability insurance.

 

5. Benefits from disability insurance from an employer sponsored plan are usually taxable while benefits from a privately purchased plan are tax free.

 

Take Away

 

What we spend our money on is a direct reflection of how we choose to allocate it. Cost, in reality, is truly not the deciding factor. Who isn’t a master at finding ways to buy things when you’ve got a big hankering for something?

 

Disability insurance isn’t sexy; it’s not something you’ll ever have a ‘hankering’ for, nor is it mandatory, like auto insurance. When it comes to spending money on things we can’t see, touch or feel immediately, our normal inclination is to back burner it.

 

When you move protecting your ability to earn income to the front burner, the good news is, cost is a very flexible thing. Personally tailored planning will provide you with protection conformed to budget.

 

Kurt Rusch CLU, ChFC

Debt & Income Insurance

Wednesday, February 23rd, 2011

In the world of insurance, there are two kinds: debt insurance and income insurance. Most consumers don’t think of it in that way, but it is important to understand what these classifications really mean and what they can provide to you.

Debt Insurance

Medical Insurance – pays for your medical bills so your family will not incur the debt of a medical procedure.

Automobile Insurance – pays for expenses incurred as a result of owning a car. The expenses covered will not only include the physical damage to your car but the liability that may incur to others as a result of you operating your car. This coverage is mandated by the states as well as physical damage coverage if the car is financed.

Homeowners Insurance – pays for physical damage to the home as well as liability that may arise while living in the home subject to policy limitations. And, as we all know, homeowners is also mandated when homes are mortgaged.

Long Term Care Insurance – pays for the cost of daily care when a person is no longer able to take care of themselves.

The common thread among these contracts is that all of them ultimately will pay someone else: mechanics, builder, caregivers, doctors and so on. Simply put, debt insurance helps us navigate emergencies and avoid life altering debt as much as possible. What debt insurance does not provide is protection of our income lifelines.

Income Insurance

The way to insure one’s income is by securing the proper amount of Disability Insurance. Debt insurance provides coverage of expenses incurred; disability insurance provides the money needed for your family to live on if you become sick or injured and unable to perform your job.

Many people mistakenly assume disability insurance is unnecessary because the Social Security system will provide for us in the event of a disability. While there is some truth to this, there are gaping holes which exist in actual benefit redemption.

First, the vast majority of claims that are filed with the Social Security Administration for disability are denied. 65% of initial claim applications were denied in 2009.* Secondly, the definition that social security uses for disability is vastly different than the verbiage commonly used by private providers. Over 51 million Americans classify themselves as fully or partially disabled. Only 8 million disabled wage earners were receiving Social Security Disability (SSDI) benefits as of June 2010.* Finally, the amount that you qualify for can vary greatly from the amount you may qualify for on a private contract. The average SSDI monthly benefit payment in 2010 was $1,065 per month. 52% of claimants received less than $1,000 per month.*

* Statistics as reported by the Council for Disability Awareness

In the world of consumer choices, there are two kinds: what you want and what you need. Evaluate your needs at a deeper level than face value; what do you really need to do to protect and provide for yourself and your family?

Kurt Rusch  CLU, ChFC