THE POINT: Whatever future you see for yourself, your family, your business partners, etc, depends on your ability to earn money. If that is taken away, you become dependent on investments, and the good will of others.
PRIORITISE: Do not buy insurance against inconvenience! Insurance is to compensate for disasters, not setbacks. Car and property insurance, which we have by law, are there to protect those tangible assets which would, in the first place, be unattainable without the ability to earn an income.
STATS: In the majority of cases, the time lost due to illness or accident amounts to less than 90 days. Of those cases where the time lost exceeds 90 days, a high percentage are long term disabilities.
SPLIT THE RISK: Insuring against the loss of income for periods under 90 days is essentiallySick Pay. An expensive proposition. It would be better to take on this short term disability risk yourself.
You could be your own insurance company for the first 90 days by building a strategic reserve of retained earnings (savings) or an accessible investment equivilant to three months salary. If you knew you would never be disabled longer than three months for the rest of your working career, that is all you would ever need. You could survive without insurance. Most of us cannot be that sure. For most of us, long term disability without insurance could be catastrophic.
What to do?
- Purchase a long term contract payable to the age of 65.
- Include a clause that enables you to claim a reduced benefit in the event of a partial disability that limits your skills, hours of activity and income.
- Include a future purchase option that allows you to purchase more coverage later on without having to proof your healthy.
- Consider a cost of living clause that allows for your benefit to increase with the Consumer Price Index in event of a long term claim.
Two Trains Running!
There are two trains of thought to most everything. Most of the time, time itself determines the winner (I said that).
The insurance industry offers a number approaches to the same destination. Two of the most popular are:
- Guaranteed Renewable & Non Cancelable Disability Contract
If you want a win win proposition, this is it. In addition to offering benefits payable in the event of a health problem, it also provides that, should you remain healthy for a specified time, you can receive the majority of your payments back.
This type of contract defines a variety of scenarios and options that could effect your income and therefore maximizes the amount of benefit potentially available to you.
Furthermore, the rates for the plan will not change in cost through to the age of 65.
- Loss of Earnings Contract
This is a less expensive contract that takes a different approach to defining loss of income. First, you must prove with records the severity of your loss to determine the amount of benefit you will receive. Second, if you are receiving benefits from other sources in consequence of your health limitations, the amount paid to you through the Loss of Earnings plan will be reduced until the total from all sources does not exceed 80% of your prior income. Third, the rates for this plan are subject to change by occupational class but not by any individual claims.
If you are the kind of person that doesn't want to negotiate any variables at time of a claim, and if you are prepared to pay a little extra in order to claim a lot back should you continue in good health, then you would be more comfortable with Plan No. 1.
If, on the other track, you totally begrudge the payment of premiums and are prepared to accept a contract that will have variables to negotiate at the time of claim, and if you are confident that only a health problem of catastrophic proportions would cause you the loss of your income, you would be more comfortable with Plan No. 2.
Of course, there's also no law against splitting the rails. . . I mean, splitting the risk between the two contracts.
