Sunday, June 2, 2013

Enhancing Disability Income Insurance With Long Term Care

What's less expensive than disability insurance, easier to underwrite, doesn't require a blood test, not occupation sensitive, pays a cash benefit, doesn't require income verification... and doesn't stop at age 65 or 70 or even when you stop working?

Answer: Long term care insurance with an indemnity "cash payment" rider.

Here are some common problems you may encounter when looking to purchase or increase disability insurance coverage:

You can't verify your income. Your occupation is considered risky. You have a disability income policy, but it's not enough to cover your expenses. You are approaching retirement age and the insurance will stop in a few years. Your disability insurance will stop but your living expenses won't. You need the disability insurance but it's too expensive.

Over the years, I've met with individuals who needed disability income protection, but for one reason or another were not able to qualify for it. Many had personal roadblocks that prevented them from qualifying for the disability insurance coverage, such as:

1. Tax returns that showed lower income. -had an occupation considered risky by disability carrier.
2. There were preexisting conditions that a typical disability policy would exclude.
3. Income was not properly documented. -occupation would preclude them from being eligible for disability income protection.

When insurance companies underwrite a disability income policy they look at morbidity (illness or injury) rates as compared to life insurance companies calculations of mortality. Statistics show that the average 35 year old has a 25% chance of being disabled for 90 days or more during their working career. That's a 1 in 4 chance of an insurance company having to pay out significant benefits for thirty or more years. Disability insurance companies have gotten burnt over the years using "relaxed" underwriting procedures. They've paid out huge claims for their mistakes and now they've tightened their guidelines for qualifying for disability income protection.

So, what do you do when you want to purchase disability insurance and your income isn't high enough to qualify for the benefit amount you need? The answer is long term care insurance with an indemnity or cash payment rider added on. Since long term care is based upon functionality (being able to perform the normal activities of daily living such as dressing or bathing) and not income or not being able to work, the insurance company is not going to look at your income or your exact job description. You can purchase an indemnity cash payment policy or one with a rider and have the benefit paid out to you directly from the company regardless of how much you are earning at the time you are injured or sick.

The same concepts hold true for type of occupation or even if you aren't even working. An indemnity long term care policy will pay your daily benefit directly to you if you need assistance performing activities of daily living (hands on care) or need someone "standing by" to prevent you from hurting yourself. The great thing about some of these policies is that you can have anyone take care of you, including family members and friends. In many cases you can take a tax deduction on premium payments and most of the benefits you receive will be tax free.

If you are approaching 60 years old and have a disability policy then you probably know that in most cases your disability income protection policy will end at age 65 or when you stop working (whichever is sooner). Long term care policies are designed for older ages so you don't have to worry about the coverage stopping when you stop working or reach 65-70 years old. Typically, long term care insurance is less expensive than disability insurance and is much easier to get underwritten. Keep in mind that in order to get trigger benefits you must have an illness or injury that affects your overall functionality in your daily life and be under the care of a doctor who will document that your debilitation will last at least 90 days.

Long term care insurance with an indemnity rider is a great way to layer your disability insurance if you need more coverage. It's also a great way to protect your income and assets in the future.

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