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Individual Disability Insurance: Protecting One of Your Most Valuable
Assets
By Pamela R. Verhasselt, CLU, ChFC, Northwestern Mutual Financial
Network
When an 18th century poet wrote, "There are worse things waiting
for men than death," he may have meant a life unprepared for
a disability. A long-term injury or illness can occur at any time,
preventing a person from working for months or years. Yet, many
people who have without hesitation purchased insurance for their
life, car, home and even jewelry, have not yet protected one of
their most valuable assets: their earning power. If a disability
makes it impossible to provide an income, many of the material goods
an individual already has insured could not even be maintained.
An estimated one out of every four people will become disabled
during their lifetime. (Health Insurance,1993) And, a 35-year-old
is 3.7 times more likely to become disabled than to die in a given
year. (Family Insurance Handbook, 1990).
A disability also can have a devastating impact on a family's finances.
Expenses for a mortgage, rent, groceries and other necessities continue
and may even rise if a wage earner cannot work. Company group plans
often fall short in their coverage and, according to the Journal
of the American Society of CLU & ChFC, only 43 percent of those
who apply for Social Security benefits ultimately qualify for them.
Even if a person is covered by Social Security, the program rarely
pays enough to meet all family expenses (Associated Press, June
30, 1999).
The Process
1. Find a representative who is both knowledgeable about
the types of plans available and is patient and trustworthy in his
or her approach. Equally important is the insurance company the
representative represents. Before purchasing a policy, the company
's market share, financial strength, financial ratings and commitment
for the future should all be considered.
2. The amount of coverage needed. According to Money magazine, disability
insurance should cover 60 to 70 percent of a person's income. The
financial underwriting standards of most insurance companies set
the rules about how much coverage they will make available to an
individual.
3. In examining plans, some of the contract definitions you should
be familiar with and specific points about those definitions that
you should consider include:
- Non-cancelable and guaranteed renewable
- Elimination period
- Benefit period.
- Definition of total disability.
- Residual benefits.
- Additional purchase benefit
- Cost of living
- Premiums
Individual disability insurance is essential for anyone who works
and relies on that salary. A good representative can help individuals
explore the many options available and select a disability insurance
plan to suit each person's budget and personal financial needs.
The most important step is to make sure a policy is in place. Make
sure your income is protected, and in doing so, you can rest assured
life can be lived to its fullest.
About the author
Pamela R. Verhasselt, CLU, ChFC is a Financial Representative with
Northwestern Mutual Financial Network based in San Francisco for
The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.
Contact her at pamelav@jps.net.
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