Wow, I Didn’t See That One Coming!Submitted by Edwards & Associates Financial Services, Inc. on April 21st, 2016
In Alanis Morissette’s hit song Ironic, she commiserates with the listener about life’s unfortunate timing. “It's like rain on your wedding day. It's a free ride when you've already paid. It's the good advice that you just didn't take. Who would've thought, it figures.”
I recently read the below excerpt and thought it would be an interesting introduction to this week’s important topic, i.e., things we didn’t see coming!
“Still having a bad day? Just remember, it could be worse. This was taken from a Florida Newspaper...
- A woman came home to find her husband in the kitchen, shaking frantically with what looked like a wire running from his waist towards the electric kettle. Intending to jolt him away from the deadly current she whacked him with a handy plank of wood by the back door, breaking his arm in two places. Until that moment he had been happily listening to his Walkman.
- Two animal right protesters were protesting at the cruelty of sending pigs to a slaughterhouse in Bonn, Germany. Suddenly the pigs - all 2,000 of them - escaped through a broken fence and stampeded, trampling the two hapless protesters to death.”1
In this blog we will consider a frequently overlooked area that can have profound consequences on those that we love the most – the loss of income.
The Ability To Earn an Income Is A Key Ingredient Of Any Financial Plan
When speaking with our clients who have families, it is not uncommon to see they made a great decision in securing life insurance, but what is commonly overlooked is purchasing insurance on their income – the financial stability piece of the equation. The question is, should they? Having the ability to earn an income is a key ingredient of any financial plan and if a family looses that ability, the foundation has been removed.
The following stats are both surprising and sobering:
- According to the U.S. Social Security Administration Fact Sheet, dated Feb. 7, 2013: 25% of today’s 20-year-olds will become disabled before they retire.
- The average individual disability claim lasts 31.6 months per the U.S. Individual DI Risk Management Survey 2011 (based on claims closed in 2010).
- Further noted is the fact that approximately 90% of disabilities are caused by illness rather than accidents. The single greatest cause remains musculoskeletal problems such as muscle, back and joint disorders, including chronic back pain and arthritis. (Council for Disability Awareness Long-Term Disability Claims Review, 2013).
- Over 37 million Americans – 12% of the population – are classified as disabled. More than 50% of those disabled Americans are in their working years, between the ages of 18 and 64. (U.S. Census Bureau, American Community Survey, 2011).
- The U.S. Social Security Administration, Disabled/ Worker Beneficiary Data, December 2012 report stated: 65% of initial Social Security disability claims applications were denied in 2012.
- The average monthly SSDI benefit at the end of 2013 being just $1,146 (Council of Disability Awareness, Long-Term Disability Claims Review, 2014).
- The American Journal of Medicine, Vol. 122, No. 8, Aug. 2008 reported that every 90 seconds someone files for bankruptcy in the wake of a serious injury or illness.2
Illness – A Respecter of No Person
The loss of income due to disability, whether illness or accidental, usually brings a double-punch to the family budget. Not only have you just lost your source of income to pay the standard monthly bills but you may also incur additional expenses (medical) which now need to be paid due to the disability.
With the average loss of income lasting over two years, that is usually more than the average family’s “emergency savings” account. If you qualify for social security disability (as stated above in point 6), the monthly amount is miniscule at best. Not exactly the amount of resources one relies on to keep a family running.
So Now What?
What are some steps you can take to protect your family from the effects of a loss of income?
- First, check out your employer benefits! Some companies offer valuable benefit elections for savings, retirement and income protection. Check with your benefits coordinator to see if the company offers disability insurance (income protection) in the benefits package. Look for both short-term disability and long-term disability. Some companies automatically provide short-term disability for free to the employee while offering long-term disability at a deeply reduced group rate. This is usually the best first place to look as it can offer the most coverage for the least premium dollars.
However, be aware that not all disability plans are equal. Be sure to speak with your Benefits Coordinator regarding the specific coverage your plan offers and don’t be afraid to ask the questions – many companies have experts to assist with all your questions so be bold in your research.
- Second, if you are your family’s main source of provision and your employer does not offer this benefit option, you may still be eligible to obtain income protection via a private policy.
Is Income Protection Right For You?
While life will always take turns we don’t expect, knowing your personal situation and exploring options to prepare for those “didn’t see that coming” moments is a prudent idea. And remember, there is never one product that “fits all” any more than the clothes that make such a statement – believe me I know!
Finally, although you may never need to use your income protection (disability) plan, if an illness did require time away from your work the plan could replace a portion of your income and minimize disruptions to your daily life and keep your financial goals on track.
John Lennon wrote in one of his songs, “Life is what happens to you while you’re busy making other plans.” Congratulations on the solid plans you have made so far for your family, and if this area hasn’t been addressed we welcome the opportunity to discuss it further with you.
1(www.Inspire21.com. Stories. Humor. Baaad Days. Web. 2 Dec. 2015)
2(Ohio National Financial Services Company: “Protect Your Life and Your Livelihood”)