Disability insurance protects your income in the event you experience a short-term or long-term disability. It is a critical piece of a household's risk management plan.
We spoke with Amber Stitt, a Financial Consultant and Risk Management Practitioner, who provides guidance to business owners, corporate executives and medical professionals on a daily basis. We asked her about the need for insurance planning to transfer risk. The practice of transferring risk can be carried over to anyone who relies on a paycheck to survive.
Leslie: Why should one consider in a Disability Insurance Policy?
Amber: Your ability to earn a living is one of your most important assets, so we must protect the ability to earn an income and to fund retirement if disabled.
Think of it as insurance for your paycheck. You don’t hesitate to insure your home, car, and phone, so why wouldn’t you also protect what pays for all those things—your paycheck.
Women need Long-Term Disability Insurance for the same reason that men do; to protect their income and financial security if they become unable to work due to a disabling event.
In fact, women may be at even greater risk of disability than men, as they often take on more caregiving responsibilities for children, elderly parents, and other family members. If their income isn’t there, who will be available to provide physically, emotionally, and financially?
Long-Term Disability Insurance provides a source of income replacement if you are unable to work due to an illness or injury. This can help cover expenses such as mortgage or rent payments, utilities, food, and other necessities. Without disability insurance, women who become disabled may face financial hardship, as they may not have the means to cover these expenses without a regular income. Especially if others depend on them too.
Additionally, women may face unique health issues that can increase their risk of disability, such as complications related to pregnancy and childbirth, breast cancer, and autoimmune disorders. Long-term disability insurance can provide financial protection in the event of any of these health issues.
Overall, Long-Term Disability Insurance is an important financial tool for both men and women to consider protecting themselves and their families in the event of an unexpected disability.
Leslie: What types of disability insurance are available?
Amber: The two categories of Disability Insurance are Short-Term vs. Long-Term Insurance Policies.
Short-Term Disability Insurance
Typically, Short-Term Disability benefits are designed to cover a portion of the individual's income for a limited period, usually up to six months. This is a weekly benefit that covers a portion of your income, up through a period. This replaces a portion of your pay when you miss work because of a covered disability. Over the last decade, these plans have shifted outside of the workplace to cover a specific number of months to about a year. Most often though, individuals purchase these plans through their job or are given them automatically via their employer for free.
Long-Term Disability Insurance
Long-Term Disability Insurance generally starts after 90-days of the disabling event and some contracts have longer durations for cost-effectiveness. This policy provides income replacement in the event of an extended illness or injury, your income is interrupted for a significant timeframe. Benefits usually last through age 65-70 years old to get those on claim closer to retirement.
Leslie: How does one obtain a policy?
Amber: The most common way to obtain Disability Insurance is through Group/Employer paid Long-Term Disability. This is offered for free through your employer and typically covers up to 60% of your base income. There can also be a supplemental policy to purchase, but generally this is available without a cost through employer benefits and are automatically provided in your benefits package.
Many of my client purchase their own plan, to either layer on top of a work plan or if they are business owners, they may have a stand-along Private Individual Disability Insurance Policy.
Private/Individual Long-Term Disability allows for more control and fewer restrictions because you build a plan with features that are specific to your personal needs and this policy is portable due to you purchasing it outside of your work plans. This means it comes with you to any job or state and has a rate lock. These policies, if set-up correctly, cannot change as you age or if your health changes. As mentioned before, some have both policies (a work and private plan), which means they supplement and layer on another policy on top of their automatically provided work plan.
Leslie: Is it hard to get approved for coverage in medical underwriting?
Amber: If one is healthy and without a lot of medical history – no.
However, as we know, that isn’t always the case for us. If there is some lengthy medical history in the last 5 years for an individual, getting approved for private long-term disability can be a complex and challenging process. Working with an independent agency or brokerage can be helpful if you need work with multiple underwriters to get the best offer. We want highly rated carriers and to layer discounts on top of the plans, if discounts are available. Always ask!
In general, the process typically involves providing an application with your personal details and then a medical records summary that can explain any present medical history. The insurance carriers are looking to review the written disclosures by the individual of medical history on the insurance application, and they will verify the history with the medical bureaus for any insurance codes or via pharmacy prescription fills. They do this by cross-referencing the disclosed history through an individual’s social security number.
During this process, the underwriters are allowed to determine what history may cause issues for a person to work in the future and they then can write an Amendment in the insurance contract to exclude this condition from future coverage on the contract. Once the approval comes in, the applicant can then decide if this is reasonable and take the offer or decline the offer. Most of this work is done up front with a broker, so we generally know what type of offer would be presented. The goal is to start the process before there is any medical history and this becomes a moot point. The goal is to have no exclusions if possible!
Insurance companies do the underwriting up front before providing an offer for insurance, so any previous medical history would typically be excluded from future claims. It is always good to know what may be “off limits” to you in the future vs. learning that the coverage isn’t available during a claim.
There are group contracts that include a 12-month pre-existing history clause (these are the disability plans offered through an employer). Often, these contracts state that anything pre-existing under the first year of employment will not be covered. While group plans are helpful to those who have medical history and can’t obtain a private plan on their own, there are still some gray areas with group plans. It all depends on the current group contract language, and these provisions can change anytime during open enrollment as HR changes their plans and packages.
It is always a good idea to review your policies annually to avoid any confusion about what kind of coverage you have. When working with a team of brokers you have a dedicated team to help you evaluate your specific needs. Your agents should also review current private policies as well as your group policies.
Leslie: Why is this an important consideration for a female?
Amber: Women’s medical history can have additional areas of risk. Our insurance approvals can look different from a male’s contract. Insurance contracts are based upon gender, age, occupation and the state you live in; just to name a few factors. We also have to consider the fact females are more prone to medical histories that will place exclusions on our contracts for insurance.
Medically speaking, women tend to be more prone to lupus, multiple sclerosis, and fibromyalgia. The science is not completely clear, or are not yet fully understood, but researchers believe that a combination of genetic, hormonal, and environmental factors may play a role. (Sources are CDC, Hopkins Medical, The NIH)
Leslie: What are common reasons for women to have a legal medical exclusion on their personal Disability Insurance plans?
Amber: The most common reasons are in the categories of Family Planning, Gynecological Issues, Mental Health and/or History Musculoskeletal disorders.
1. Family Planning
Leslie: If this is all true, why do people hesitate to acquire Disability Insurance or plan for Extended Care?
Amber: I think the topic is just so overwhelming that we tend to push it off. It isn’t fun to think about the potential risks that are out there and plus it costs money!
Traditionally though, there are several reasons why people may not do enough financial planning and risk management for themselves and their families:
Creating plans while healthy and well can help individuals achieve their financial goals and protect themselves against financial difficulties. This offers the ability to have resilience when life throws us a curveball or two!
Leslie: How can people prepare themselves better?
Amber: We suggest the following Action Items Today:
Amber Stitt can be reached at email@example.com and can be found at www.amberstitt.com