Let’s step away from life insurance for a day and address an inherent problem in disability income insurance. Disability income insurance is there to theoretically replace earned income in the event that a person is disabled by injury or illness. Companies normally cap their benefit at 65% of a person’s annual gross earned income, up to company limit per policy of say, $16,500 a month.
So, a person making $100,000 a year would receive $65,000 a year in tax free benefits if totally disabled. The question always comes up about whether the company will stop paying the day you are able to flip a burger for McDonalds. The answer is no. If you are able to return to work in a job where pay and benefits are comparable to your old job then in some cases, yes. But most professionals choose to be covered for disability from their own occupation. A physician on disability would not be expected give up benefits unless he or she was able to return to work as a physician.
So what’s the problem with traditional disability income insurance? For most the 65% represents a cut in pay. The old thinking was that someone making $100,000 would pay 35% out in taxes and social security, so 65% was adequate. There was also an assumption that the same percentage should be good for all levels of income when in fact, the higher a person’s income, the less likely 65% is to be adequate.
And what about the cap that insurance companies put on benefits? $16,500 a month is a lot of money unless you take home more than that. I have plenty of clients who make more than $300,000 a year, some who make millions a year as CEO’s. What are they going to do when their pay is cut to $198,000 a year. This is where Lloyds of London steps in. For those who would be taking a pay cut by receiving a capped income, Lloyds can offer disability insurance to supplement your current plan or replace your current plan. This not only provides adequate coverage now but allows the flexibility of increasing coverage as your income grows.
And Lloyds will provide disability income where traditional companies don’t even pretend to want to tread. Traditional companies want easy to compute income and they want, for the most part, people whose job has little or no inherent danger. Artists, writers and actors have huge fluctuations in income and very often reach a level of income where traditional coverage would be inadequate anyway. Ship’s captains, Offshore oil workers, fishermen, professional athletes and loggers all have work that are either inherently dangerous or too high paying, or both, for traditional coverage.
It is not uncommon for traditional disability income plans to be declined or limited due to high net worth, too much unearned income, or income which is reported through capital gains. Lloyds can design a plan to level the playing field for those whose success is measured on a W2.
Bottom line. With DI there is almost a system of adverse selection when it comes to those who have done the best. If you would like to look into higher limits or excess disability income call or email me directly. Let’s talk.