“YOU CANNOT BE PARTIALLY DEAD!”

As the title of this issue clearly states (and as all of you hopefully know) partial death does not exist. You are either dead or you are alive. Disability, on the other hand, is not an “either/or” situation. You may be totally able to work; totally unable to work; or your ability to work has been reduced. It depends on the specific condition that you may have; the stage it is at (early or advanced); the type of work that you do; even the motivation you have to work. For example, the whole concept of “pain threshold” is very subjective. I may be severely affected by slight pain; whereas you may be able to work in almost utter agony. Also – if I am a truck driver, total disability is much more likely than if I am an office worker; particularly if my job largely consists of knowledge and communication. For example, if I work at a desk answering phone calls from customers, voice-operated technology would allow me to continue working in a state of health which might seriously impact me if I worked in construction instead.

Imagine a situation where fire caused $50,000 damage to your $100,000 home, and your insurer told you that since it was not a total loss; they are not liable to pay! Given that not all disabilities are total, it can be very important to have coverage against both total and “non-total” disability.

That being said, there are two approaches to insuring “non-total” disability.

            The first approach – “partial disability” – looks at what parts of your job you can do and/or how long you can work for. It insures your time and your duties. Officially, the definition states that you “must be unable to perform one or more of the important duties of your regular occupation or that you must be able to perform all of the duties for less than half the time normally required to perform them.” This definition does not consider the income you earn while “partially disabled”. Generally, it pays 50% of the basic monthly benefit for as long as 36 months (depending on the carrier) of partial disability; then the benefit reduces to 25%.

            The second approach – “residual disability” – defines disability based on the income lost due to disability. If the loss is less than 20%, no benefits are payable. If the loss of income is between 20% and 80%, benefits are paid equal to the loss of income. If the loss is 80% or more, full benefits are paid.

I often say that “partial” insures what you can do and “residual” insures how well you do it. Which is “best”? Frankly, it depends on YOU and your situation at the time you become disabled. If your income is significantly related to your efforts - if you bill (or are paid) for hours worked or paid based on your own success (commission sales, for example) then “residual” is probably best for you. On the other hand, if you are “protected” by employees - if your income is less dependent on your own efforts OR if you prefer not to submit financial information during a disability, then “partial” may be best.

There is no question that it can be easier to collect “partial” benefits, but the trade-off is that if income is significantly affected by your disability, you may not collect as much as you would under the “residual” option.

How long are benefits payable? They may be payable for 6, 12, or 24 months or for 5 years or to age 65.  Generally speaking, the shorter durations are for “partial” benefits; and 24 months or longer usually offers both forms.

Products may offer only partial benefits, only residual, or both.

Another issue to consider is that our situation may change with time. What may be best for us in 2010 may not be the best choice in 2016. The most flexible contracts offer both partial and residual and allow you to choose at time of claim the one best suited for your situation at that moment.

The important thing is to have SOME protection against non-total disabilities. This means that you will not be faced with an “all or nothing” situation should you become disabled. Your lifestyle will be protected no matter how the disability affects you.

Back in 3 weeks to look at some other optional features that may be attractive.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance

DISABILITY INSURANCE IS NOT COMPLICATED!

Disability Insurance is not complicated, it is just different. What is the definition of “death”? Well…if our brain is not functioning, if we are not breathing, and if our heart is not beating, we are either a politician or we are dead. Obviously death has a definition; we can look it up in the dictionary, but we all know what it means.

On the other hand, a disability is not so easily defined, or I should say, the definition is not as unanimous. Does disability mean that we cannot do our own job? Does it mean that we cannot do any reasonable job?  Does it mean that we cannot work at all? Disability can be “total” – eliminating our ability to work – or “partial/residual” – reducing our ability to work but not completely eliminating it. The effect of a particular disability depends on the job that we do. For example, I cut the median nerve in my right hand in a work accident in 1963 and now have limited sensation in my right hand. It has some effect on my ability to work as I cannot write for an extended period of time, but it has no real effect at all. On the other hand, if I were a surgeon, a dentist, or a jeweler, I might well be totally disabled, as I am right handed and it would definitely impact my ability to do those jobs.

Let us return to the definition of total disability. There are three basic definitions of what constitutes total disability. In order of generosity, they are:

1. “Own Occupation” – Under this definition, you are considered totally disabled if you are unable to do your job and you are under the care of a doctor appropriate to the nature of the disability that you have.
2. “Regular Occupation” – Under this definition, you are considered totally disabled if you are unable to do your job, you are not working in any other job, and you are under the care of a doctor appropriate to the nature of the disability that you have.
3. “Any (or any reasonable) Occupation” – Under this definition, and which we rarely see in the early stages of a disability, you are considered totally disabled if you are unable to engage in any reasonable occupation based on your education, training, and experience (some may also include your income as a determinant of “reasonable”) and you are under the care of a doctor appropriate to the nature of the disability that you have. An even weaker definition eliminates the whole area of “reasonable” and you basically must be unable to do anything.

“Own occupation” can be very attractive, because you can actually economically profit from a disability. If you cannot perform your duties, the company will pay the full benefit under your policy, even if you earn significant income from another occupation. There is a dentist in Montreal who is unable to practice dentistry because of vision problems. He is collecting total disability benefits even though he is working full time, and very successfully, as an insurance advisor. Insurance is supposed to protect us from a loss - not allow us to make money. Therefore insurance companies are limiting the occupations they will offer this feature to for several reasons. First, companies divide occupations into groups (or “classes”) - the higher the “class” the lower the risk for the insurer and they therefore can offer more options, better features, and more guarantees, while keeping the cost low. Second, with “own occupation,” the appeal is really only for those professions that include a “physical” element, surgeons and dentists for example. This is because the disability, while preventing you from working in your current occupation, must also allow you to work in another profession. Frankly I fail to see how psychiatrists, for example, would benefit from this feature. They earn a living by listening to and talking with clients. If they are unable to do that, what will they be able to do?

To me, and my 40 years of experience in this area, the “regular occupation” definition is ideal. It protects against a loss; the insurer does not care what you can do - only what it is that you actually do!

As long as I cannot do my job, and I do not “choose” to work elsewhere, I will be paid. This definition is offered by all the major carriers to basically all occupations. The only issue is “Does (or can) the definition change after 2 or 5 years of disability?” Some carriers include “regular occupation to age 65” as part of their basic policy; others start with a limited period “regular occupation” definition and offer an option of extending it. It is my professional opinion that regular “occupation to age 65” should always be chosen. I do not want the insurer to have the right to re-assess our clients.

Back in 3 weeks to discuss “non-total” disabilities where we will examine cases in which a condition exists that reduces our ability to work without eliminating it completely.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance

Protect your most important asset

Introductory remarks:

The purpose of this blog is to help prospective and existing clients, and advisors understand this area of insurance: an area that many find complicated, confusing, and just plain difficult. It is an area where I have worked for many (try 40) years and a topic that I am very passionate about. I will address why I am so passionate about this topic at a later date. For now, let me introduce the topic and encourage questions, comments, suggestions, and most of all participation.

Before I start the “hard” part, let us look at what Disability Insurance really is. "Why is Disability Insurance important and why should it be included in a financial plan?” The answer to that question prompts another question: “How important is my income to my financial plan?” If your answer is that your income is not important, that you are so financially well off that your income is insignificant to you, then Disability Insurance is truly not an important issue in your life.

If, on the other hand, you are like most and your income is significant to you, then you should seriously consider protecting it. Most of us feel that we need life insurance to protect our families and businesses during our “growth” stage – while we are building and accumulating to reach our goals, be they financial, professional, personal, etc. If we die while our children are still at home, and before we have built our “nest egg,” then we need life insurance to cover our outstanding mortgage(s), provide for our children’s education, or for whatever purpose we feel is important.

While I will not attempt to lessen the financial and emotional impact of death, a disability is far more devastating financially. If I die my income dies with me and needs to be replaced, however, my consumption also dies; I no longer eat, require clothing, or create additional expenses. If I am disabled, my income dies, or is reduced, but my consumption continues and may even increase due to medication, special equipment, etc.

Our most important assets are not our home(s), our savings or investments, or our car(s); our most important assets are both our health and our ability to generate an income. All that we do is dependent upon them.

The purpose of this blog is to provide a simple explanation of Disability Insurance - a product which protects our most important assets. I want to explain what "disability" means. (We all know what "death" means - but disability needs to be defined).

Now, I will endeavour to make this fun, and certainly interesting and informative. If you have any questions please ask. The value of this blog is significantly linked to the level of participation

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance