The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FrugalFisherman10 on June 19, 2017, 08:00:24 AM
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I am considering buying disability insurance (the individual kind, in addition to my group policy at work).
The reason I bring all this up is I am evaluating some stuff one of my friends is trying to sell me from Northwestern Mutual. In general I am not interested in anything they are selling (because I have some bias I guess), but I've been willing to entertain his pitch at least to educate myself and give him an appointment. My main reason for not wanting to buy through them is then they will also want to be involved with/'advise me' on everything else with my finances, like stocks, mutual funds, life insurance, etc. for the rest of my life, and I just don't want that. I don't want to tie myself to that company for any reason. Commitment issues I guess :)
Nonetheless, it got me thinking about LTD insurance and I think it's something worth considering. I'm single, my family (mom, sister, bro in law) could definitely not support me if I were to lose my income due to disability, and it seems like a real risk. I have a long time horizon of work (I'm only 26, and while planning to be FI in my early 40s, who really knows what will happen in that department).
I have read through some bogleheads information but wanted to see if there is any other stuff I can pick people's brains on here about.
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First I think, I should start with what I have available through work.
Short Term disability (not really what I'm concerned about right now): If you have Less than two years of service Your STD benefit will be...70% of annual salary for up to 180 days
That's me ^ Sweet. Moving on.
Long-Term Disability group MetLife Policy through my employer
If you are unable to work for more than 180 days, you may become eligible for long-term disability (LTD) benefits. The program offers two different LTD options:
Option 1
60% of annual salary* up to $20,000 per month
Option 2
70% of annual salary, bonus, and commission* up to $25,000 per month
*Your annual salary as of your date of disability.
Basically I have to pay extra to get Option 2.
Maximum Benefit Period*:
Age on Date of Your Disability: Less than 62 ....Benefits To age 65
etc.
Rehabilitation Incentives…Yes
Additional Benefits:
Portability...Yes
All that is great, but the main kicker with this stuff seems to be the language of the definition of "Disabled". So here it is, from my policy statement:
Disabled or Disability means that, due to Sickness or as a direct result of accidental injury:
• You are receiving Appropriate Care and Treatment and complying with the requirements of such treatment; and
• You are unable to earn more than 80% of your Predisability Earnings for any employer in Your Local Economy at any gainful occupation for which You are reasonably qualified taking into account Your training, education and experience.
For purposes of determining whether a Disability is the direct result of an accidental injury, the Disability must have occurred within 90 days of the accidental injury and resulted from such injury independent of other causes.
If You are Disabled and have received a Monthly Benefit for 12 months, We will adjust Your Predisability Earnings only for the purposes of determining whether You continue to be Disabled and for calculating the Return to Work Incentive, if any.
This seems to be an "Any Occupation"-type definition, which is to be expected with Group insurance, but isn't super beneficial for me if I end up becoming disabled from my job right?
My job btw is in Corporate Finance, Financial Planning & Analysis. I'm a CPA. I do Finance (forecasting, analysis) for a global asset management company.
Also I had a bout with anxiety when I was in late middle/high school for which we sought professional help, took meds, etc. and I know that 'mental disorders' can come into this equation at some point. I'm all good now, without any meds, and have been for about 8 years.
Thoughts?
How should I go about evaluating some of the other policies from like Guardian and others? Do I just contact an insurance broker? Would it be advisable not to use the NW Mutual guy to compare these for me? Would it be ok to use the guy that sold me my Car and Renter's Insurance?
Last thought on it - it seems SOO many people go through life without adding any sort of individual disability policy to that already likely offered by their employer. I'm looking at my mom (retired now), a bunch of my coworkers in their 50s (soonish to be retired I guess), and when I casually ask about LTD they just say "Oh we have that through here so you're good." So, are they just gambling with this and have gotten lucky all these years to never have needed it?
Is it really worth considering buying?
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Make sure you look at your Social Security statement and see what you'd get per month if you are disabled. That might cover the 40% shortfall of your work-provided policy.
I personally wouldn't sit through a sales pitch for something I have no intention of buying, but if your friend needs the practice appointment, just let them know beforehand there is no way you are buying anything.
I pay for the optional LTD insurance at my work. Back in college an accounting professor showed some statistics that as a 21 year old, you were much more likely to become disabled in the next 40 years than die. I figured for the $5 or so per paycheck it is well worth it for the piece of mind that I will get something close to my full salary (SS Disability + the LTD policy) if the worst happens. My dad had serious health issues in his mid-40s leading to permanent disability, so genetics are working against me, too.
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Make sure you look at your Social Security statement and see what you'd get per month if you are disabled. That might cover the 40% shortfall of your work-provided policy.
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You'll want to see if there is coordination of benefits with SS. The employer-provided policy I had when working required filing for SS benefits, and only paid the difference between what SS paid (if anything) and the stated benefit.
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Also look to see which of these options (if any) are tax free or tax advantaged. IIRC when DH1 was on disability his work payments were tax free. I think had something to do with whether he paid for it with after tax money. (Recollection is dim since this was more than 20 years ago.)
Also you cited the STD payments you'd get with less than 2 years employment. Do LTD payments also change after you have two years there?
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Make sure you look at your Social Security statement and see what you'd get per month if you are disabled. That might cover the 40% shortfall of your work-provided policy.
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You'll want to see if there is coordination of benefits with SS. The employer-provided policy I had when working required filing for SS benefits, and only paid the difference between what SS paid (if anything) and the stated benefit.
Good point. I am going to dust off my paperwork and see if that's the case for me.
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Make sure you look at your Social Security statement and see what you'd get per month if you are disabled. That might cover the 40% shortfall of your work-provided policy.
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You'll want to see if there is coordination of benefits with SS. The employer-provided policy I had when working required filing for SS benefits, and only paid the difference between what SS paid (if anything) and the stated benefit.
My employer paid policy reduces by the amount I receive from other sources.
But that's not really the issue here, at least I don't think.
i.e., I'm not that concerned about the 40% shortfall. I'm more concerned about qualifying in the first place - I've been told by Mr. NW Mutual that it is hard to qualify as "disabled" (in a way you'd want to) for either SS Disability or the Group/Employer LTD.
The point of getting an individual LTD plan is to make up for the 'contractual language' gap, just as much if not more so than the money gap.
can anyone confirm? Insurance agents?
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Also look to see which of these options (if any) are tax free or tax advantaged. IIRC when DH1 was on disability his work payments were tax free. I think had something to do with whether he paid for it with after tax money. (Recollection is dim since this was more than 20 years ago.)
Also you cited the STD payments you'd get with less than 2 years employment. Do LTD payments also change after you have two years there?
I believe the benefits from the employer-paid Group policy are taxable to me. I don't pay anything for the premiums so that makes sense (unless I elect to get the 70% mentioned above - then I pay out of pocket for it.)
Also you cited the STD payments you'd get with less than 2 years employment. Do LTD payments also change after you have two years there?
no. good question - thanks
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Their definition of "disabled" ("You are unable to earn more than 80% of your Predisability Earnings for any employer in Your Local Economy at any gainful occupation for which You are reasonably qualified taking into account Your training, education and experience.") actually seems pretty favorable to me.
It's saying that if your disability prevents you from doing your previous occupation or any other occupation that pays almost as much, they'll consider you disabled and give you benefits. It's not quite as nice as a policy that would give you benefits if you can't go back to your exact same job, but it's also not so bad as a policy that would refuse to pay out if there's some minimum wage job that would hire you after your injury.
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Woah you're right.
So basically it's like this:
IF I was to get disabled and couldn't earn 80% of my salary at the time I am disabled
THEN I would get paid 60% of my salary instead.
do you know what the 'portability' thing means?
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If the "portability" is in your existing work LTD insurance, it means that you can take it with you when you leave the company. It may cost you more but at least you'd have it if you otherwise become uninsurable.