MKA Executive Planners Blog

For most employed Americans their most valuable financial asset is not their house, car or other possessions.  It is the paycheck.  The ability to earn a living today and into the future determines our quality of life.  If your paycheck stops due to illness or injury will you be able to meet your on-going cash flow needs and future financial obligations? 

One in three Americans between ages 35 and 65 will become disabled for more than 90 days, and 90% of all disabilities are due to illness according to Disability Insurance Services (dis).  Your paycheck may be gone once sick and vacation time run out.  Personal savings will only take you so far.  The comfort of a second wage earner is typically not a buffer against financial distress since it is already figured into the family budget.  Other items like contributions to a 401(k) plan and college educational funding programs will be adversely affected by a disability. 

Protecting yourself and your family is an important issue requiring a few minutes to determine if you in fact have adequate disability protection.  If an individual has an employer provided group long term disability (LTD) policy they are often well protected.  However, it is important to understand that there are limitations on the group LTD benefits based upon the employer’s plan design and the insurers underwriting offer.   A Group LTD plan may not cover your complete income replacement needs.  Some of the most important provisions of a disability policy are:

1. benefit amount,
2. maximum monthly benefits,
3. elimination/waiting period, and
4. how long the benefits continue. 

Language regarding the definition of disability is the key part of a disability policy.  Some pay if you are unable to perform the duties of your own occupation, some only pay if you can’t work at any occupation for which you are reasonably qualified.   

In addition, taxable versus non-taxable benefit payments directly affect the amount of monthly income an individual can expect to receive. Many employers have moved the cost of group LTD insurance protection to employee paid.  This controls employer benefits costs, still provides access to a quality plan and provides more income directly to the disabled employee, since the benefit received is not taxable if paid for by the individual.    

If you are one of the fortunate individuals who has employer provided group LTD coverage, it may be wise to calculate how much income it replaces during a disability.  You should check if you have short term disability (STD) to cover the period prior to LTD coverage activation.  Also, check on health insurance premiums, although, you may have the right to remain in your employer’s plan, you should find out what the amount of monthly premium you will have to pay.  Your disability income replacement is your: monthly income available minus your monthly expenses = Disability Income Needs.  At the executive level, the group benefit is likely to be insufficient.

The important question is: Do I have adequate disability insurance protection for myself and my family?

Your analysis may or may not indicate that an individual policy in addition to a group plan might be the answer.

If you would like more information on this subject, or have a client who might benefit from a discussion about it, please contact Robert Mitchell at rmitchell@mkaplanners.com or (781) 939-6060.

Securities offered through Advisory Group Equity Services, Ltd., Member FINRA/SIPC.  444 Washington Street, Woburn, MA 01801 (781) 933-6100. 

This article should not be considered as providing accounting, business, financial, investment, legal, tax, or other professional advice or services.  It is not a substitute for such professional advice or services, nor should it be used as the basis for any decisions or actions that may affect your business or you personally.  This should only be one part of your research.  You should seek authoritative guidance from a qualified accountant or attorney before taking any action.

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