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How do you Protect your income from a Partial Loss?

Dean A. Schachter

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You must purchase a Residual or Partial Disability Rider that is part of your Disability Policy.

Why should I purchase the Residual Disability Rider?
So that you are always protecting at least 60% of lost income. Without this rider you either collect 100% on a total Disability or zero for anything less than total.

Disability policies cover loss of income due to a total disability. But what happens when you are partially disabled? When that happens you need an optional Benefit called Residual Disability.
A Partial Disability is when you loss of income is at least 20% and up to 80%.

How to calculate your partial loss:
To determine the percentage of lost income divide your income after the disability by your pre-disability income. Example, if your pre-disability income was $5,000 per month and your income after disability is $2,000 then your loss of income is 60%.

If your loss of income is 80% or greater then the disability companies consider your loss of income to be 100%.

Your benefit under Residual Disability is that percentage of lost income multiplied by the total disability benefit on your policy.

So if your total disability benefit is $10,000 per month you multiply that times the 60% and you get $6,000 that month.

This formula is used each month you have a partial claim.

Posted by: Dean Schachter


Disability Insurance - Why only a Maximum of 60% of Salary?

Dean A. Schachter

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When calculating the maximum disability benefit a company will offer, the guideline is 60% of Pre-Tax Salary. why is that the maximum?

There are three factors to consider:

(1) If you look at your pre-tax vs. after-tax salary, your taxation of 20% to 30% leaves you with 70% To 80%. So, a disability benefit of 60% is close to what you took home after taxes.

(2) Back to work. There has to be some incentive to return to work. While most people want to return to work ASAP some people use a Disability Policy and aren’t in a rush to return to work! If a Disability Policy replaced 100% of your salary you might be inclined to delay return to work.

(3) Expenses not paid during a disability. When disabled there are some expenses that you won’t have include the costs to travel to work (Gas, car, tolls, repairs). How much of your salary does that take?

Do you really need the full 60% of Salary?

For some people, they have certain expenses that they want to cover, such as mortgage/rent, utilities, medical insurance. The other expenses might be paid by a spouse. By lowering the monthly benefit to just what you need you will significantly reduce the premium.

Posted by: Dean Schachter

Disability Insurance - Noncancelable vs. Guaranteed Renewable

Dean A. Schachter

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No two Disability Policies are alike. One of the key features is the Definition of Disability and how the premiums are calculated.

It’s important to read the illustration and policy carefully!

A disability policy’s premium can be either Noncancelable or Guaranteed Renewable. For both, the policy is guaranteed to remain in force as log as premiums are paid.

Which one is best?
A Noncancelable Premium is guaranteed to remain level from the date of policy purchase until age 65 and the premium can NOT be increased for any reason, as long as premiums continue to be paid. This is the better of the two.

A Guaranteed Renewable Premium can be increased by the insurance company. They would file for a rate increase for all policyholders in the same Occupation Class on a non-discriminatory basis, similar to a medical insurance company requesting a rate increase from the state’s department of insurance.

Believe it or not, the cost for the Noncancelable premium is only about 5% higher that the Guaranteed Renewable.

What to do?
Always choose the Noncancelable Premium! As the years go by the level premium will look more and more affordable.

Posted by: Dean Schachter

Disability Insurance Elimination Period.

Dean A. Schachter

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What is the Elimination Period?

Also known as the Waiting Period. This is the time the insured must wait from the onset of a disability until the insurance company starts payments.

The Elimination Period choices are:

30 Days
60 Days
90 Days
180 Days
365 Days
703 Days

The longer the Elimination Period the LOWER the cost.
The difference in cost of Elimination periods is important .

A 30 day waiting Period will cost twice the 90 day waiting period.

But a 180 day waiting period is about 5% less than the 90 day waiting period

Which one to choose:
Given that most disability companies can take up to 90 days to process and investigate a claim,
most insureds opt for the 90 days. It’s also the best way to keep the premiums affordable.

During the waiting period you will draw from savings to pay the bills until the disability
benefits begin so keep that in mind when choosing an Elimination Period.

Posted by: Dean Schachter

Disability Insurance Benefit Periods

Dean A. Schachter

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When purchasing a disability insurance policy there are many choices in the type of coverage. One of the most important is the Benefit Period, which is the length of time the disability company will pay a claim.

The benefit period choices are:

2 Year
5 Year
10 Year
To Age 65
To Age 67
To Age 70

The longer the benefit period the HIGHER the premium.

Why choose a long Benefit Period?
We don’t know how we will become disabled due to an accident or sickness or how long it will last. Having a permanent disability means never going back to work and living on Social Security, Pension and savings.

With a Disability policy you have a monthly income to replace your work income. Naturally, when faced with a long term or lifetime disability an insured would want the longest Benefit Period.

Posted by: Dean Schachter