Lots of us sign up for life insurance, while few of us will pay for disability insurance, even though we are seven times more likely to be disabled for the short- or long-term, than we are to die. As independents, consultants and entrepreneurs, we are at much greater risk of damaging our financial stability than are employees. And, often, employers’ disability policies cover only 50% of your salary. (Thanks to Ken Scopp for these statistics; more on disability and other insurance at his site, Scopp & Associates — highly recommended).
I was reminded of this recently when two friends of mine let me know they needed immediate treatment for different kinds of cancer. One has disability insurance, one does not. Both are independent consultants and looking at long-term treatment that will interrupt their practices and their income.
Nearly 20 years ago, Ken Scopp (a certified financial planner) and I designed a disability policy for my practice, with lots of bells and whistles no longer available in today’s market. Then, 10 years ago, in 2003, we converted part of that policy to another program that covered long-term care. So now I carry both, for the same annual cost. Why? Because disability insurance payments, important as they are, get determined by the insurance company (are you 40% disabled for the type of work you do? 70% and so on), and end when you reach 65. And because, long term care is not just for the elderly, but for anyone who has an injury or disability that will last longer than six months and will need assistance in the home, or in a care facility. Long term care lasts as long as you pay the premium, which gets locked in (in most policies) at the time of purchase, so the younger you begin, the better the deal. (Look for a separate article on long-term care, soon).
So, if you are a significant income-generator for yourself or your family, it is important to protect yourself against the unknown. I am one who believes that any insurance is a necessary evil. My insurance costs are a significant portion of my overall business expenses. Because I maintain a strong cash flow, I treat insurance as protection against catastrophic events, for the most part. But your situation may differ, which is why some strategic help from a financial adviser is useful.
In any case, it is wise to educate yourself on these kinds of protections for your income, especially if you are the one who creates the income and runs the business.