The Five Disability Insurance Mistakes People Make
1. Underestimating the Odds of Becoming Disabled
The risk of a disabling illness or injury that prevents a worker from doing his or her job is more significant than most people realize. According to information compiled by the National Association of Insurance Commissioners (NAIC), a male U.S. worker at age 35 faces a one-in-four chance of disability taking him off the job for 90 days or longer during his working career. A 35 year-old woman faces a nearly one-in-three risk of disability lasting at least 90 days before reaching retirement. In fact, the risk of an extended disability during a worker’s career is six times greater than the risk of premature death. Most workers would never think of going without life insurance protection for their families.
2. Relying on Employer Provided Group Disability Insurance
Group disability insurance is very limited in terms of their benefits and they don’t guarantee your premiums or many of the key provisions of the plan. As a result, not only can your premium increase, the plan can become even more limited. However, the biggest concern it that, if you change employers, you can’t take your coverage with you; so, if you develop health problems, you may not be able to qualify for disability insurance later.
3. Waiting to Buy
Human nature is to put off the things we dislike. Unfortunately putting of the purchase of disability insurance can have disastrous consequences. First, the longer you wait, the more expensive disability insurance becomes. Second, as indicated above, you could develop a health condition that disqualifies you for coverage, or makes it prohibitively expensive. It just never pays to wait.
4. Getting an Exam Prior to Applying for Coverage
Disability insurance is medically underwritten; meaning that you have to be in good health in order to qualify for coverage. Pre-existing medical conditions can result in a higher premium, exclusions from coverage or in some cases, complete denial. Part of the normal underwriting process is for the insurance company to request medical records from any physician you have seen in the last five years. If just prior to applying for coverage you go out and have a bunch of diagnostic tests performed, it increases the likelihood of the insurance company finding something to use against you.
In no way does this suggest that you put off needed medical treatment or try to hide a known medical condition from the insurance company; however, if you know you are going to apply for disability insurance, just postpone any medical checkup until after you’ve qualified for the coverage.
5. Not Buying Disability Insurance
See Mistake #1. You are the goose who lays the golden eggs. Your ability to earn an income is worth far more to your family than this week’s pay check. It can be worth hundreds of thousands or millions of dollars over your lifetime. It is, by far, your most valuable asset, and it would be a grave mistake to leave it unprotected.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
