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What Is Long-Term Disability Income Insurance, And How Do I Know If I Need It?

Long-term disability income insurance can be an important part of a financial plan and an overall risk-management strategy. But who needs it? Brant Steck explains.

Transcript

Tim Maurer:
Hello. Tim Maurer back with another episode of Ask Buckingham, a video podcast designed to bring clarity in the midst of confusion by connecting your great personal finance questions with straightforward answers from industry thought leaders. Today’s question will be answered by Brant Steck, Risk Management Consultant with First Element Insurance Planners. Brant, today I want to talk about long-term disability income insurance. That’s a mouthful. How do I know what it is, and whether or not I need it?

Brant Steck:
Well, long-term disability insurance is essentially income protection. A lot of people have life and term life insurance to protect their income in the event of prematurely passing. Long-term disability essentially provides protection in the event of disability.

Tim Maurer:
All right, so how do I know if this has coverage that I already have? Is it the same thing as workers comp insurance for example?

Brant Steck:
It’s not the same as workers comp, and it’s not the same as short-term disability. One, you can check with your HR to see what your benefits are. Many people think they have long-term disability and they have short-term disability. The main difference is months versus years. Short-term disability usually provides coverage for a matter of months, most common being pregnancy-related maternity leave, and then long-term disability is usually in increments of years, anywhere from five to 10 years, but most commonly to age 65.

Tim Maurer:
Yeah, I love that the miracle of birth is now considered a disability. But I am glad that that coverage exists to help people out in that circumstance. Is it also possible that as a result of my status as an employee of a company I already have some long-term disability income insurance?

Brant Steck:
You very well may. The question is, number one, is it portable? Does it go with you? If you separate from employment? Number two, is it adequate? Especially for higher-income earners it’s highly unlikely that the amount of coverage is going to sufficiently protect that person’s lifestyle.

Tim Maurer:
So what’s the answer in that case if I have something with my work, but I may not have enough?

Brant Steck:
Get the details, and find a qualified risk management consultant to visit with to look and see what you have, and make sure you understand it. Then look at supplementing the coverage through an additional insurance policy.

Tim Maurer:
Is it also true that oftentimes that supplemental policy can be more highly tailored to the needs of the individual, whereas the group policy attached to their employment might be a little bit more generic?

Brant Steck:
Absolutely correct. An individual policy you’re going to be able to get, you really narrow the scope in getting exactly what you want. The most important thing that you look at is the definition of disability, and that varies from policy to policy. Most people prefer to have a policy that is going to provide benefits if they’re unable to do their own occupation. However, there are policies that provide benefits only if you’re unable to do any occupation, which is a major difference, so that’s one thing to particularly look out for it.

Tim Maurer:
Let’s talk a little bit about the difference between an any-occupation policy and an own-occupation policy.

Brant Steck:
Well, let’s say that you’re a surgeon, and you’re unable to perform surgery because of an injury to your hand, but you could do some other type of job in the hospital. Well, if you have an own-occ definition policy, you’ll be able to collect benefits because you’re unable to do the duties of your own occupation. Whereas in any-occupation, if you can still perform work, it’s not going to provide a benefit.

Tim Maurer:
What should I expect about the cost of supplemental long-term disability income insurance? Is this expensive stuff?

Brant Steck:
Yes. I mean it’s going to be more than you think. In the term life insurance comparison I already drew, it’s going to be a lot more than your term life insurance. But in terms of the benefit that it provides in the higher likelihood of being disabled than passing away, it’s quite reasonable.

Tim Maurer:
Brant, if somebody’s interested in determining whether or not they have enough long-term disability income insurance, and possibly purchasing a supplemental policy, what steps would you recommend they take?

Brant Steck:
I’d recommend that they find a quality risk management consultant and perform a needs analysis. Identify how much of their income their family needs to maintain their lifestyle, and basically what they would be able to do in the event of disability other than their own occupation, and tailor a plan that’s specific to their individual needs.

Tim Maurer:
Now, when someone’s looking for an insurance agent there’s a certain perception out there that some of these folks are more interested in themselves and their own benefit that they’re going to receive from the policies that they sell than the person to whom they are selling the policy. What suggestions would you make? What are some red flags that people might look for in potentially working with an agent who’s not looking out for their best interest?

Brant Steck:
Yep. Undoubtedly, in the insurance business there’s a stigma, and sometimes that’s a difficult thing to hear because I know there’s a lot of people who are trying to do good things out there. But in general, if anyone starts with a product before identifying needs, before getting health information, before really getting to know their client, that’s usually a red flag, and it’s something that should probably be avoided.

Tim Maurer:
Thank you, Brant, for this helpful education, and for also not living down to that stereotype we just discussed. And thank you for tuning into this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website, askbuckingham.com, or by emailing your question to question@askbuckingham.com. Or just take it easy on yourself and click in the corner of the screen. It’ll take you directly to the website. Remember that there are no dumb questions per se, but unfortunately there are plenty of poor answers out there. Our hope is that in giving you straight answers to your questions it will bring a sense of calm, and allow you to apply what you’ve learned in pursuit of good decision-making. So please follow us, and by all means, ask Buckingham.

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