Author Topic: What do I do about my disability insurance?  (Read 3847 times)

Merrie

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What do I do about my disability insurance?
« on: March 14, 2015, 02:20:40 PM »
I am a baby Mustachian looking for some advice on disability insurance. My husband is not a Mustachian at all, but for purposes of this topic, that's not relevant. We have about 90k in various traditional retirement vehicles, about 180k in student loans (ouch), and owe about 206k on our mortgage (again, ouch). I am the sole breadwinner if you don't count his job working in the church nursery for $40 per week, and I am a pharmacist. We have two little kids.

I have a disability policy now, which we purchased a couple of years ago when I was working part-time, and I didn't qualify for most policies. The only one my financial advisor could find for me pays benefits for only 2 years. This will be in addition to 1/2 salary that I get through my employer's LTD benefit, and anything I can pull in through Social Security. I pay $220 every 6 months.

Well, now I am full-time and qualify for better policies. My financial advisor wants me to switch to another policy that will pay me benefits until I'm 65. This will cost about $100 per month in comparison to my current $36.

But I wonder if a 2 year period would be enough to, hypothetically, instead downgrade our house and send my husband back to work, if I did get disabled and it looked like it would be long-term. Right now I clear about 6k a month and between debt payments and living expenses we're spending most of it, and I'm throwing any extra at the debt. So I would clear ~3k a month from the policy through my job, and maybe some through Social Security depending on how disabled I was. My husband might be able to pull in 2k a month. My financial planner says that since I am the breadwinner we need to protect my earning power and our standard of living.

And if I were too disabled to work, what else would we need that we don't need now, that I would need to use that money to buy? Care for our children if I were too off my rocker to be a decent caregiver? Home health aide? I don't really know.

Thoughts?

lise

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Re: What do I do about my disability insurance?
« Reply #1 on: March 14, 2015, 02:44:42 PM »
$100 seems steep. 

I am 45 and pay $36 per month for $60,000 coverage until age 65.  However I am self employed and it's the only coverage I have. 

I am thinking you should be able to just work at thinking you can survive on your employer's LTD benefit.  1/2 salary is better than nothing.  Invest the $100 somewhere else that you would pay for additional coverage.

WhatIsFrugalAfterAll

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Re: What do I do about my disability insurance?
« Reply #2 on: March 14, 2015, 02:53:19 PM »
I see the word financial advisory and hear alarm bells.

Not that it means bad.. but they are after commission, not your well being.

Google and price a few policies online. I suspect you can find a cheaper policy.

LTD seems pretty important. Tricky to figure out though, not as simple as life insurance (where you are just dead or not dead)

caliq

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Re: What do I do about my disability insurance?
« Reply #3 on: March 14, 2015, 03:13:29 PM »
I personally think two years is not enough time, depending on the type of disability.  And that's based on personal experience -- I'm about a year and a half into a major disability situation with my husband (who is only 29 btw) and there's so much to deal with medically.  I can't imagine having to worry about selling my house and making serious lifestyle changes on top of dealing with his medical stuff, all of the finances, full time school, and part time work.  And kids on top of that too?!? Dear lord, I'm already imploding with what I'm dealing with now -- I can't imagine what you'd be asking your husband to do :/ 

I can't speak to the specifics of your disability policy, but do know that getting Social Security disability is not at all easy.  DH is considered 100% disabled by the VA and he still got denied for SSDI. 

Merrie

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Re: What do I do about my disability insurance?
« Reply #4 on: March 14, 2015, 07:40:35 PM »
I personally think two years is not enough time, depending on the type of disability.  And that's based on personal experience -- I'm about a year and a half into a major disability situation with my husband (who is only 29 btw) and there's so much to deal with medically.  I can't imagine having to worry about selling my house and making serious lifestyle changes on top of dealing with his medical stuff, all of the finances, full time school, and part time work.  And kids on top of that too?!? Dear lord, I'm already imploding with what I'm dealing with now -- I can't imagine what you'd be asking your husband to do :/ 

Thanks for that perspective. I will definitely share that with my husband.

The financial advisor... some day I hope to be at a point where I can figure this stuff out on my own, but at present we are still kind of at a point of "It isn't going to get done if it's too much work". At this point it's worth a bit, to me, to have a guy who I can drop an email to and say "Can you set up this for me?" or "Do you think I should do X or Y regarding Z?" Over time we will progress in this.

Another thing I have thought about is setting the new policy up with a 2 year exclusion and keeping my existing policy, that way if I do end up with a disability >2 years then the new policy will kick in where the current one stops. Then some day if I want I can cancel the longer-term policy and keep the shorter-term one, particularly as it was purchased when I was younger and got better rates. I still have to get the numbers on this though--I only asked him for these numbers yesterday so I am waiting.

TN_Steve

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Re: What do I do about my disability insurance?
« Reply #5 on: March 14, 2015, 08:05:43 PM »
We obtained "til 65" for DW when I started doing SAHD, which sounds like what you are in.  Our thinking was that if DW was unable to work in her own profession (key term for LTD), there was a not-insubstantial possibility that she wouldn't be able to take care of the kids either.  Given that, we went for a pretty expensive policy that would pay a huge chunk of what she was then making.

Particularly given the possibility that the stay-at-home might not ever be able to match the earnings of the primary wage earner, we were comfortable with this.  (FWIW, DW had very good income and worked with her hands as well has her M.D.; therefore, the disability policy, procurred in 1994, required 2 payments of $1600 each year....)

frugaldrummer

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Re: What do I do about my disability insurance?
« Reply #6 on: March 14, 2015, 09:22:48 PM »
With all those loans and with children, you definitely want good disability insurance. Be careful though....at least when I bought my policy eons ago, it wouldn't pay out more than your total prior income INCLUDING any other disability insurance you have. So you might be paying more than you need, if you're paying for a policy for 6000 coverage, but they only pay out 3000 because you're already getting another 3000 from your work's LTD, then you've been paying for twice as much coverage as you got.

Also bear in mind expenses could go way up if you're seriously disabled....you could need childcare and home health aides and such. So you very well might need 6000 in disability payments PLUS husband's new income to get by.


Merrie

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Re: What do I do about my disability insurance?
« Reply #7 on: March 17, 2015, 09:06:40 PM »
Thank you everyone for your replies. I am going to go ahead and add the new policy with an exclusion period of 2 years and keep my current policy as well. That ended up being slightly cheaper ($90 vs $115 a month) and then I can cancel one of the policies later if I want and keep the other. Once I get the highest interest student loan paid off, our required monthly cash outlay will drop by >1k and at that point we could have the discussion again about whether we still need the long-term policy.

The policy is only going to pay out something like 2k since I get 3k through my employer.

Drifterrider

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Re: What do I do about my disability insurance?
« Reply #8 on: March 18, 2015, 07:52:28 AM »
Let me give you some information from direct recent personal experience.

READ the long term disability coverage CAREFULLY.  Look for the clause that if you are not deemed qualified for Social Security disability, you are not covered by your private LTD policy.  ALSO, look for the claw back provision.

My brother died.  Prior to his death he was unable to work.  After six months of not being able to work his LTD policy AND his Social Security Disability began.  His LTD policy had a claw back provision which meant, for every dollar Social Security Disability paid, his policy held back one dollar. 

He was still better off having the policy as even with the dollar for dollar offset he got more having the LTD policy BUT, he had never bothered to read the coverage. 

Had Social Security deemed him ineligible, his LTD policy would not have paid.

HazelStone

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Re: What do I do about my disability insurance?
« Reply #9 on: March 18, 2015, 10:12:36 AM »
When you talked about qualifying for disability coverage, was the issue your health history or the fact that you were part time? You may want to watch out for:

- own-occupation vs. any-occupation: This is whether the policy covers you if you are unable to work your current job, or if you can still work any job. Say you get into a car accident with some significant brain damage. Under any-occupation coverage, they'll say you can still be a Walmart greeter and tell you to take a hike. Own occupation means that it will still cover you if you can't work as a pharmacist anymore, even if you could be the Walmart greeter if you really wanted to.

- how long does the insurance company have to contest your policy/claim? In most states this is two years. If the company finds out you lied/omitted something on your application, they have those two years to find out about it and rescind your policy and/or deny your claim.

-coordination with Social Security benefits.  As mentioned already, some policies out there will dovetail with Social Security's disability payments- it is a sneaky way to keep premiums looking low compared to other policies with better coverage. Many policies do not tie benefits to qualifying for SSDI though. Also, Social Security's backlog on disability applications is just insane nowadays. Technically you qualify for SSDI if you've been disabled at least six months- if you think you'd see any of that money inside of a YEAR you better think twice. Now it's more like 2 or 3 depending on region.

-mental health coverage. This may or may not matter to you, but a nontrivial portion of the population has mental health issues for some stretch in their life. Some get hit hard.

Merrie

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Re: What do I do about my disability insurance?
« Reply #10 on: March 20, 2015, 08:39:59 AM »
Thanks guys. I asked those questions and I like the answers I got. I appreciate any other advice that occurs to people.

Merrie

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Re: What do I do about my disability insurance?
« Reply #11 on: March 20, 2015, 08:46:32 AM »
He also recommended this "residual/recovery" rider. I'll just paste his explanation:

"Residual/Recovery is partial disability.  If you were sick or hurt and could only work 20 hours a week, we would be pay partial benefit.  the recovery part is if you are fully recovered, but not making the full amount of income we would bridge the gap.  If you didnít have this rider, then you would have to $0 earnings to qualify for benefit.  I recommend this to all of my clients."

To the tune of $145 a year. The recovery part doesn't impress me; in my line of work, if I'm 100% back at work, my income is going to be comparable to the income of any other pharmacist. Residual might be worth it though. Thoughts?