Thank god I'm covered

I have been doing a lot of Disability Insurance quotes lately. I think it is related to the recession, specifically the unemployment numbers. I beleive people are seeing all of these layoffs which gets them thinking about their own job security. It is not a big stretch to go from worries about being laid off, to worries about being disabled and being unable to work even if you have a job.

Disability Insurance comes in all sorts of flavors, all different price ranges and have a wide variety of options. If you are thinking about disability insurance I can certainly help you find the right fit.

I work with small business owners and sole proprietors a lot, I have been doing a lot of policies set up like what i will describe below.

Policy : Great West Life - BossPlus Non-Cancelable Disability Policy
The policy is underwritten by Great West Life, which has an office in town, a lovely Living Benefits specialist named Helen Murphy, who can solve any problem and helps tremendously getting difficult policies placed. Great West Life has solid rates, which easily compete with the likes of RBC, and Manulife, two other companies with strong disability products.

The BossPlus policy has a lot of good features built in and is designed for business owners. One of my favorite built in features is the cashflow benefit. It is hard to just jump right back into your business after being disabled for possibly years. You have to let your clients know you are back, or find new ones. Those first months back are going to be tough. Great West Life will pay you a portion of your benefit for the first few months while you are returning to work to make things easier for you.

The Optional Features that I try and add to every policy are:

Enhanced Partial Disability
Either Regular Occupation Extention or Own Occupation Extention.

The Enhanced Partial Disability benefit pays you a pro-rated benefit if you suffer a partial loss of income or if you can only work part time due to disability. Often business owners will still answer the phone, do the books and try to manage from afar even if they are totally disabled, without this option, if they work at all they loose their benefit. But, by adding this option the business owner can keep their business alive while we pay them a prorated benefit to make up for their loss of income.

Regular Occupation and Own Occupation, have their differences but their goal is the same, keep your benefit coming even if you can do another job. With Regular Occupation, if you can work in another job but choose not too, you still get your benefit. With Own Occupation, you can work in another job, as long as it is a different career than before, earn a salary and STILL receive your benefit. I like Own Occupation for a business owner, because often they might be able to do another job, but are unable to run their own business. With this option they can take a job they might enjoy, earn a living, and still receive a benefit simply because they are unable to run their own company.


Premiums
Pricing, is influenced by the options above but mostly is tied to benefit amount, elimination period, and benefit length. Obviously the larger the benefit the more its going to cost.

The Elimination Period is the length of time you must be disabled before the benefit starts, it typically ranges from 30-365 days. Most employee's set their elimination period to 120 days, as EI runs out at 119 days. This way they jump right from EI to LTD so they never go without an income. Business owners don't have EI coverage, so the choice isn't as simple. I typically recommend 91 day elimination periods, most people can go 3 months on savings, or drawing from the company. 91 days is also the sweet spot for premium, dropping to 61 days adds 30% to the cost, waiting the whole 120 days only saves about 3%.

Benefit length is also up for debate, but most business owners love what they do and don't want to do anything else, most of them choose coverage to age 65. If the benefit is going to last more than 10 years I also add a Cost of Living Adjustment (COLA) which increases the benefit amount with inflation.

So whats it all add up too?

Name: John Doe
Age: 40
Gender: Male
Occupation: Accountant (class 4A)
Monthly Benefit: $5000
Elimination Period: 91 Days
Max Benefit: to Age 65
Options: Cost of Living Adjustment, Enhanced Partial Disability, Own Occupation Protection.

Monthly Premium: $185.54

Sample Illustration

It seems expensive at first but if he were disabled in the first month of the policy, and stayed that way till age 65, the insurance company would have paid him 2.5 Million dollars over the life of the policy. Furthermore, if he is getting a benefit of $5000 a month, he has to be earning close to $10,000 per month to qualify for that benefit, which means the premium is a little less than 2% of his income. Who wouldn't trade 2% for 2.5 Million? especially when you would need it the most.


One last little anecdote. We have a client who kept refusing the buy disability insurance, we finally convinced him he needed it, he was a motorcycle rider after all. About 6 months after getting the policy he was riding his bike down the road, hit a bump, flew over the handlebars, and while in mid air the only thought in his mind, or so he tell us, was "Thank god I'm covered". He broke both his wrists. His policy paid him buckets.


***Edit: I just re-read the post at home. Ugh, so many grammatical errors, I'll fix it later promise.