Transcript The Need ofr Disability Income Insurance 2008

What Consumers Need to Know
Of all the risks you take, if you could only
protect yourself against one, would it be:
 The one most likely to occur?
or
 The one that if it were to occur, could
produce the greatest financial loss?
Chances of Disability vs.
Other Insurable Losses
Life
1 in 1300
1 in 70
1 in 109
1 in 8 !
Disability
Sources:
Transactions. Society of Actuaries
Commissioners Disability Table
Death – National Center for Health Statistics
Fire & Motor Vehicle – Accident Facts. National Safety Council
Your Most Valuable Asset is
Your Ability To Earn An Income
Total Income to Age 65
Current
Age
$25,000
$35,000
$50,000
$60,000
$100,000
$125,000
$150,000
30
875,000
1,225,000
1,750,000
2,100,000
3,500,000
4,375,000
5,250,000
35
750,000
1,050,000
1,500,000
1,800,000
3,000,000
3,750,000
4,500,000
40
625,000
875,000
1,250,000
1,500,000
2,500,000
3,125,000
3,750,000
45
500,000
700,000
1,000,000
1,200,000
2,000,000
2,500,000
3,000,000
50
375,000
525,000
750,000
900,000
1,500,000
1,875,000
2,250,000
55
250,000
350,000
500,000
600,000
1,000,000
1,250,000
1,500,000
60
125,000
175,000
250,000
300,000
500,000
625,000
750,000
Good News
Bad News
People are
living longer
Diseases that
used to cause
death are now
leaving people
disabled.
Disability/Death Trends - Major Health
Conditions
Condition
Death
Disability
Hypertension
-73%
+70%
Heart Diseases
-29%
+44%
Cerebrum Vascular
-48%
+36%
Diabetes
-27%
+36%
All Four
-32%
+55%
Source: National Center for Health Statistics 1999
Prevalence of Disability
 37.7 million people reporting activity limitation
(roughly 15% of all Americans)
 73% are classified as disorders / limitations
 27% are classified as impairments
Source: U.S. Census Bureau Report, 1994-1995, Table 1C
Major Causes of Disabilities 1995 – 2000
(From the data of a major DI Carrier)
Musculoskeletal Disorders
22%
Injury and Poisoning
20%
Mental Disorders
13%
Cancer (All Kinds)
11%
Circulatory Disorders
9%
Genitourinary Disorders
7%
Nervous System Disorders
6%
Digestive Disorders
3%
Endocrine, Nutritional, Metabolic
3%
Miscellaneous
6%
Different Levels of Disability
 Total  then partial  then recovered
(i.e. heart attack)
 Partial  then total  then death
(i.e. cancer)
 Partial  stays partial
(i.e. bad back)
 Total  stays total
(i.e. auto accident causing permanent paralysis)
Why Don’t People Buy
Disability Income (DI)?
No one ever thinks they are going to
become “disabled,” which in their minds
means:
Where do we spend our money?
•
•
•
•
•
•
•
•
•
Housing
Transportation
Food
Personal Ins./Pension
Other/Misc.
Clothes
Entertainment
Health care
Education
30.0% *
19.6% *
16.6% *
8.6%
8.6%
5.5% *
4.6%
4.4% *
1.5% *
* Over 75% of what we spend is non-discretionary !
Source: HUD
The Risk of Disability
3.5
3
2.5
2
Disability
Death
1.5
1
0.5
0
Age 32
37
42
47
52
Source: CLU Journal, Vol. VII, No. 1
57
What Causes More Mortgage
Foreclosures – Disability or Death?
50%
40%
30%
20%
10%
0%
Disability
Death
Source: HUD
When Disability Strikes, It Takes a Long
Time to Recover
Years
• The average duration
of disability which
lasts over 90 days at
certain ages is....
6
5
4
3
• The Result ?
The loss of earnings,
which can be
staggering!
2
1
0
Age
30
Age
35
Source: Commissioners Disability Table
Age
40
Age
45
The Need For DI - The Two Line Story
When Disability Strikes
INCOME
(SAVINGS)
DEBT
EXPENSES
(Food, Clothing, Home, Car. Medical
Everyday Living)
What you may have been able to save in ten years..
may be wiped out in days or months !
Options When Disabled
• Savings…but 80% of all families have less than
$5,000 in savings
• Social Security…but many are initially rejected
and must appeal – that can take years
• Sell Assets (Such as Your Home)…but you
may have no choice
• Borrow Money…but credit is based on income
• Spouse’s Income…but today most families are
dependent on 2 incomes
 It is very difficult to collect a disability benefit
ButSecurity.
I Have Social
Security !
from Social
Here’s why:
 5 month waiting period on the initial benefit
 Definition of disability that is very strict
 Must have an impairment that has lasted or could be
expected to last for at least 12 months or result in death
 Must be unable to engage in ANY substantial gainful work
that exists in the national economy
 Work doesn’t have to exist in the immediate area in
which the claimant lives
 A specific job vacancy does not have to exist
 The applicant wouldn’t even necessarily have to be hired
Source: Social Security Department
What Choices Do You Have?
• The only logical solution to protecting your most
valuable asset (your income) is to buy DI
protection
– Individual coverage
– Group Short Term and/or Long Term Disability
coverage
• This will provide monthly benefits for both total
and partial disabilities
DI Product Offerings –
For Individuals
• Individual DI – available through your agent,
broker or employer
• Group Short Term Disability (STD) – may be
available through your employer
• Group Long Term Disability (LTD) – may be
available through your employer
Key Features of Individual Policies
• Types of Policies
– Own Occupation – insures one’s duties at work
• Described as “Material and Substantial” job duties
• Some contracts may insure one’s specialty
– Income Replacement – insures one’s income and not
specific job duties
• Income loss due to a disability triggers the claim
Key Features of Individual Policies
• Renewal Options
– Guaranteed Renewable
• Insurance company cannot cancel the policy, or change policy
provisions (but it can increase the premium)
– Non-cancelable
• Insurance company cannot cancel the policy, change policy
provisions or increase the premium after issue, as long as
timely premium payments are made
Key Features of Individual Policies
• Definition of Disability
– Own Occupation – insures the ability to perform one’s
duties in his/her occupation…it does NOT insure one’s
job
– Most liberal definition is the inability to perform the
material and substantial duties of one’s own
occupation, which may include a specialty (especially
in the professional ranks of doctors and lawyers)
• This is the occupation that is engaged in at the time the
disability begins
• Insured may still be able to work in another occupation and still
receive the disability benefit
Key Features of Individual Policies
• Elimination (or Waiting) Period
– When do benefits begin?
• Normal period offerings are 30, 60, 90, 180 and 365 days
• Benefit Period
– How long are benefits paid?
• Normal offerings are 2 years, 5 years, to age 65 or 67, and in
some very limited cases, lifetime
Key Features of Individual Policies
• Benefit Amount
– How much will you receive each month?
• Determined as a percentage of your monthly income up to a
maximum amount
– Maximum amount depends on occupational classification
– Benefit Percentage is usually no more than 70% of total monthly
income
• How is Residual or Partial Disability Defined?
– This becomes important in professions where you may
be able to come back to work on a limited basis, and
suffer an income loss
Key Features of Individual Policies
• What optional riders are available?
– These are optional benefits that can enhance your
coverage
• What exclusions does the policy contain?
– These are conditions that limit the amount and/or the
period of time that you will get paid
• Other Policy Language
– It is important to work with a professional consultant on
this as it may be the difference between getting paid a
benefit or having the claim denied
Key Features of Group STD
• Available through your employer
– As such, coverage is not portable and stays with the
employer if you leave
• Rates may increase at renewal time
• Elimination (Waiting) Periods
– May have separate days for sickness versus injury
– Can range from 0 days, 8 days, 15 days or 30 days
Key Features of Group STD
• Benefit Periods
– Can range from 13 to 52 weeks
• Benefit Amounts
– Can range up to 70% of monthly income with a
maximum amount up to $2,500/week (depending on
the carrier)
Many of these variables are determined by the
employer since the contract is between the
employer and the carrier
Key Features of Group LTD
• Available through your employer
– As such, coverage is not portable and stays with the
employer if you leave
• Rates may increase at renewal time
• Elimination (Waiting) Periods
– Can range from 30 days to 365 days
Key Features of Group LTD
• Benefit Periods
– Can range from 2 years to Age 65
• Benefit Amounts
– Can range up to 66 2/3% of monthly income with a
maximum amount up to $15,000/month (depending on
the carrier)
• Limited coverage for partial or residual
disabilities
Key Features of Group LTD
• Usually limited or no options for future insurability
• Normally issued with limitations for mental,
nervous, drug and alcohol abuse disabilities
• May be employer paid (non-contributory) or
employee paid (contributory)
– If totally contributory, benefits received tax free
• Pre-existing condition language
– Usually a 12 month limitation period
• Cost is less than for individual coverage
See A Professional DI Advisor
• There are many professional advisors
(insurance agents and brokers) who can show
you how each policy works
• Check with such groups as the National
Association of Health Underwriters (NAHU) or
the International DI Society for the names of
carriers and advisors
Disability Happens
• With disability, it is not a question of “if”, but
“when”
• Protect yourself today - your ability to earn an
income is the most important asset that you own
– Everything else revolves around this ability to
go to work and earn an income
Everything Depends on Income