There are several types of disability income policies available. As taxpayers, most workers are already enrolled in a disability plan: Social Security’s Disability Insurance. The definition of disability the Social Security Administration uses is strict, i.e. your disability is expected to last for at least 12 months or is expected to result in your death. Therefore, it is often hard to qualify for Social Security disability benefits.
Many employers offer group disability insurance as a benefit. It is a cost-effective way to provide a base amount of income protection. These policy benefits are typically capped and intended only to provide for a basic amount of coverage; therefore, high wage earners very often have a large portion of their income unprotected. These employees may choose to supplement their group disability plan with an individual disability income policy, customized to a specific set of individual needs. Many individual plans include an “own occupation” provision to protect a person’s particular skill in the workforce. Additional features to individual disability policies can include protection for partial disabilities, inflation of the benefit and future increases in coverage without having to be “re-underwritten.”
Business owners have access to unique disability income insurance policies to help them address the potential challenges of keeping their business running during a disability of the owner or key person. Disability buyout coverage is an effective way for partners to protect their own interest as well as the interest of the other partner. This works substantially similar to the buy-sell agreement funded with life insurance I discussed last week, but this protects against disabling events. If Partner A were to become disabled and unable to perform his normal duties, this policy’s benefits ensure Partner B has cash to buyout Partner A’s interest and Partner A has liquid cash at a critical time.
Another policy tailored for business owners is a business overhead expense policy, designed to cover the ongoing, regular operating expenses for a limited time while an owner can recover or decide on other options. Finally, a business loan protection policy can make sure the loan payment is covered in the event of a disability so a business can survive through a difficult transition period.
Protecting your most valuable asset, your ability to earn an income, makes good financial sense. A financial professional or trusted insurance adviser can help you customize disability income policies for your specific needs.
William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The Marietta Daily Journal will periodically publish columns from KSU business faculty.