Disability insurance really does have a bad rap just due to the fact that no one thinks that they could become disabled, and so, therefore, think that it's a waste of money. A lot of people know that they could get sick or even die, but a majority of people don't think they could become disabled. Disability insurance helps protect your income if you become disabled. There are several different choices you have when it comes to disability insurance. Before I present those options, I want to talk about our hypothetical client, 'John', again.
Here is the scenario:
John is 34 years old and has an income of $80,000. He has a mortgage on a house that, if he were to sell it today, would get him $200,000. He has a business that he could sell for $1.4 million. He also has 2 rental properties worth $300,000. He owns 2 cars with a value of $30,000 for both. He has a life insurance policy for $1 million in the event of his death. He also carries health insurance.
John's assets (including his life insurance policy) total just over $3 million dollars. Now, let's look at each asset individually for a second. His primary residence is worth $200,000. He has lived there for 8 years. Now, like most of us who own our homes, he carries insurance on this house in case of fire, flood or natural disaster. So, why does John carry this insurance? If his house burned down the insurance company would cut a check for the value of the house. I have a question... How many houses in John's neighborhood have burned down in the last 8 years? Realistically: none. But, he still keeps the insurance "just in case" to protect it in case that does happen.
Let's look at his business. He currently carries insurance on his business in case of fire, flood, or natural disaster as well. He also carries liability insurance in case someone gets hurt or injured at the work site. He also has insurance for theft of property. Now, John has had his business for 10 years and has had nothing happen to him where he had to file any claims on his carrier for these issues. Again, he carries this insurance "just in case".
As for his rental properties, he has insurance for those for the same reasons. Just in case...
Car insurance, I understand, is a little different. If he is financing the cars (which we will assume he does) he has to have full coverage on them because the lender wants their property to be protected in case he is involved in an accident.
What asset have we listed that has no protection? His income. (That income, by the way, pays for all his other assets.)
Let's assume just for a second that John does get into a car accident. Did you know that, according to the Texas Department of Transportation, in 2008 there were a total of 347,113 car accidents. Of the 347,113 accidents 30% were serious injury accidents. These were people that were hospitalized 90 days or longer. Just a couple of questions. Who was driving John's car that has insurance? John. Who spent 90 days in the hospital that had health insurance to pay the doctors, food, clothing and shelter? John. Who was able to pay John's bills while he was hospitalized for those 90 days? No one. Who paid John's bills for the next 12 to 18 months while he was going through physically therapy? No one. So if in this scenario John was hospitalized and had to go through physical therapy, what would he have when he came out of the hospital? Probably nothing.
So as you can see, disability insurance is just as important as your health life and property insurance. The cost for a good disability plan has several factors, such as type of occupation. If you're a doctor, your rates would be less than someone who washes windows, for example.
John is 34 years old and has an income of $80,000. He has a mortgage on a house that, if he were to sell it today, would get him $200,000. He has a business that he could sell for $1.4 million. He also has 2 rental properties worth $300,000. He owns 2 cars with a value of $30,000 for both. He has a life insurance policy for $1 million in the event of his death. He also carries health insurance.
John's assets (including his life insurance policy) total just over $3 million dollars. Now, let's look at each asset individually for a second. His primary residence is worth $200,000. He has lived there for 8 years. Now, like most of us who own our homes, he carries insurance on this house in case of fire, flood or natural disaster. So, why does John carry this insurance? If his house burned down the insurance company would cut a check for the value of the house. I have a question... How many houses in John's neighborhood have burned down in the last 8 years? Realistically: none. But, he still keeps the insurance "just in case" to protect it in case that does happen.
Let's look at his business. He currently carries insurance on his business in case of fire, flood, or natural disaster as well. He also carries liability insurance in case someone gets hurt or injured at the work site. He also has insurance for theft of property. Now, John has had his business for 10 years and has had nothing happen to him where he had to file any claims on his carrier for these issues. Again, he carries this insurance "just in case".
As for his rental properties, he has insurance for those for the same reasons. Just in case...
Car insurance, I understand, is a little different. If he is financing the cars (which we will assume he does) he has to have full coverage on them because the lender wants their property to be protected in case he is involved in an accident.
What asset have we listed that has no protection? His income. (That income, by the way, pays for all his other assets.)
Let's assume just for a second that John does get into a car accident. Did you know that, according to the Texas Department of Transportation, in 2008 there were a total of 347,113 car accidents. Of the 347,113 accidents 30% were serious injury accidents. These were people that were hospitalized 90 days or longer. Just a couple of questions. Who was driving John's car that has insurance? John. Who spent 90 days in the hospital that had health insurance to pay the doctors, food, clothing and shelter? John. Who was able to pay John's bills while he was hospitalized for those 90 days? No one. Who paid John's bills for the next 12 to 18 months while he was going through physically therapy? No one. So if in this scenario John was hospitalized and had to go through physical therapy, what would he have when he came out of the hospital? Probably nothing.
So as you can see, disability insurance is just as important as your health life and property insurance. The cost for a good disability plan has several factors, such as type of occupation. If you're a doctor, your rates would be less than someone who washes windows, for example.
There are numerous plans that you can choose from as well.
Next week I will explain and describe what to look for in a disability plan, such as elimination periods, benefit periods, your own occupation, etc...
If you have disability insurance now it's very important you read what the definitions are in the policy. For example, how does your policy describe what a disability is? Does your plan say that you have to be a quadriplegic before it pays out? Or, does it read that it will pay out if you simply can't do your normal duties? I will get into this a lot more next week.
Next week I will explain and describe what to look for in a disability plan, such as elimination periods, benefit periods, your own occupation, etc...
If you have disability insurance now it's very important you read what the definitions are in the policy. For example, how does your policy describe what a disability is? Does your plan say that you have to be a quadriplegic before it pays out? Or, does it read that it will pay out if you simply can't do your normal duties? I will get into this a lot more next week.
If you would like to see what it would cost to protect your income "just in case" please click here. There is no obligation - just an opportunity to see what it would cost to protect yourself completely.
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