Rising Exec Reconsiders Disability Income Insurance

After a difficult period of unemployment, Sylvia scored a great job as an executive of a nonprofit. Her benefits package was decent except for one thing: Her group plan disability insurance fell short of her needs. As someone who had once been disabled following an auto accident, Sylvia couldn’t live without a good disability income insurance policy — especially in a slow-recovering economy. She visited her financial advisor to talk about what she should look for in good coverage.

Sylvia’s advisor’s first question was about the details of her employer’s group plan. Did she really need to spend money on this type of insurance? Turns out, the nonprofit’s plan covered less than 60% of her income, benefits would end when she reached age 65 and there was a lengthy waiting period for payouts. With those downsides in mind, her advisor could see the wisdom in Sylvia’s interest in a disability income policy.

Calculating Disability Income Insurance coverage

When considering prospective policies, her advisor began, she should look for one that covers at least 60% to 70% of her income. Sylvia can put a finer point on a target coverage amount by calculating monthly expenses such as:

• Mortgage and insurance payments,
• Groceries,
• Property taxes,
• Home maintenance, and
• Utilities.

Of course, being off the job will lower or eliminate other expenses. Sylvia can likely discount the costs of regularly commuting, lunching out at restaurants, and maintaining a professional wardrobe.

Deepening disability protection

When shopping for coverage, Sylvia’s advisor stressed that she should strive to add as much depth to her protection as possible within her budget. For starters, how does a given policy define “disability”? The broader the definition, the better.

Next, she should look to tailor her monthly benefits to her lifestyle — even if doing so means buying extra coverage or adding a policy rider. And, ideally, Sylvia should opt for “own occupation” rather than “any occupation” coverage. (The latter could force her into a new, lower-paying position.)

Last, though Sylvia was displeased with her group plan’s long waiting period, her advisor noted that a longer wait for payouts can lower a policy’s cost. She said she’d like to try to find a happy medium between her employer’s long wait and a short period that could drive up coverage costs.

Shopping smart

From a tax perspective, Sylvia’s advisor had some good news: Generally, a policy paid for with after-tax dollars will provide tax-free benefits. With this parting upside in mind, Sylvia thanked her advisor for the input and left to get started on some smart shopping.

Please contact Feeley & Driscoll's Accountants and Consultants by Email or call 1 (888) 875-9770 to learn more.

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