Protecting Your Largest Financial Asset: Di Coverage

By Author: Annuity Zing
Total Articles: 13
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Your largest asset is not your house, your health, or your company pension.

For almost everyone who is still working, your largest asset is your ability to produce an income. Thus, the most important type of insurance is disability income insurance (DI). You need it more than any other kind of insurance - more than life, health, homeowners, or auto insurance. In fact, in my firm's planning practice, we typically are far more concerned that our clients own disability coverage than life coverage.

Although everybody who earns a living needs disability insurance, according to a survey by the Consumer Federation of America, 82% of American workers don't have long-term disability coverage or believe that what they have is inadequate.

There are two reasons why:

Reason #1: It won't happen to me
I bet you think "bad stuff" only happens to the other guy. Well, to the other guy, you're the other guy. Consider this: 48% of all mortgage foreclosures in USA are caused by disability. When somebody gets injured or ill, they can't work. They then lose their job and thus their income. With no income, they can't ...
... make their mortgage payment and the bank forecloses. If you thought people lose their homes because they're deadbeats, alcohol or drug abusers, criminals, or compulsive gamblers, think again. They're good, honest people who merely suffer a disability.

Although only 18% of workers believe they have adequate DI coverage, virtually all home-owners have insurance on their homes. I'll bet you do, too. Yet has any house on your street ever burned down? Unlikely, becuase the odds of that happening are only one in 1,200.

Yet your odds of suffering a disability before age 65, one that lasts 90 days or more is an incredible 1 in 8. So if you think it won't happen to you, maybe - just mayby - it might.

Reason #2: It's too expensive
Without question, DI coverage is expensive. Annual premiums can be 1% to 3% of your annual salary. And that's why many people ultimately reject DI insurance. "I can't afford it," they say.

Turn this argument around. The reason you need to buy disability insurance is exactly why you don't want to buy it.

Have you ever seen one of those insurance commercials on late-night TV? "For just two dollars a week... you cannot be turned down... veterans only..." and other non-sense. These policies are only two bucks a week because the insurance companies know they're not going to pay a claim!

If you look at the fine print, you'll see that the benefits for the first several years often are limited to a return of the premiums you've paid, minus administrative costs. Since most buyers of this awful coverage are a gizzillion years old, the carriers know the buyers will die before they qualify for a claim. Thus, the carriers collect $2 a month, for which they do nothing in return. That's why coverage is so cheap. For the carrier, that $2 premium is virtually pure profit!

This is the main thesis of the insurance world. A policy is cheap when the insurance company knows it is unlikely to pay a claim. But policies are expensive when there is higher probability that you will file a claim. Therefore, the more expensive the policy, the more you need the protection.

Of those who have DI coverage, most have it only because it is provided by their employer. But group coverage has several problems such as - the group policy's definition of disability is far too restrictive; your employer can cancel the coverage at any time; the insurance company can cancel the benefit at any time; if you leave your employer, you lose the benefit; and the cost of the coverage can increase. In addition to these problems, red flags rise for two groups of workers: those who plan to leave their jobs, such as women who want to stop working for a few years while they raise children, and any worker who intends to become self-employed.

This information about the disability insurance is brought to you by the combined efforts of SEP IRA Rollover and IRA Rollover Tax.
http://www.sepira-rollover.com/
http://www.ira-rollover-tax.com/