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Yesterday I had two training meetings about Disability Income insurance. The basic principles of Disability Income insurance have not changed during my 25 year career. They got me thinking.
“I am a business owner. What would happen to my business if I were to have a stroke and not be able to work?”
PERSONAL CURRENT INCOME
Just like an employee, if I were not able to work, I would not be able to help new clients. I would also anticipate that many of my current clients would leave to find an insurance agent who is healthy and is able to help them.
The result is that I would need to rely on my personal Disability Income insurance to provide a flow of income until, and if, Social Security Disability Income benefits start. (That would be no less than 6 months after my disability started but could be as long as 3 years, depending on how many appeals it takes)
PERSONAL FUTURE INCOME
One hiccup, that I was aware of but it never hurts to be reminded, that many people do not plan on in their retirement planning is, “What happens to my 401k while I am disabled?”
While you are disabled, your contributions to your 401k at work typically stop. Since you are not contributing to the account, any matching funds that your employer contributes also stop. The result is that if you are unable to work for any extended period of time you will have significantly less in your retirement account to help offset Social Security Retirement.
Also, since Social Security bases your retirement benefit on your income history, an extended period of disability could have a negative effect on how much you get from Social Security when you retire.
The solution to both of these retirement concerns is the same. Most insurance companies do not offer it, but a few do. A few insurance companies offer plans or riders that can be added to your personal Disability Income policy that will continue your benefits after you become eligible for Social Security Retirement.
Those plans and riders cost more in premiums than a traditional Disability Income policy. However, if planning for retirement is a major concern of yours, it is worth the extra premium
Often businesses have an employee with specific skills and abilities. Many times that person is the business owner. However, I have seen several businesses where the key person is not the business owner but an employee with a special skill.
If that employee has an accident or illness that prevents him/her from doing the job, the entire business is effected. If they are unable to work for long enough, the business ceases to exist.
“Key Man” (Key Person for those who are a stickler for political correctness) insurance provides the business with the money that is required to allow the business to survive while it finds and trains someone else, with similar skills, to replace that key employee.
Many times entire businesses are forced to close because the business owner is unable to spend the time that is required to operate the business. When that happens, the owner is not the only person that is punished.
Not only is the business owner’s income effected, but all of the employees must be “laid-off.” Their incomes stop for reasons beyond their control.
Business Overhead Disability insurance provides a business owner with sufficient money to keep the business operating until he/she is recovered sufficiently to return.
Business Overhead Disability insurance typically pays the business enough money to meet payroll, pay utilities, pay rent, etc.
In fact Business Overhead Disability insurance will pay for most of the things that are required for the business to stay operational. However, there is one area that you must address if you are a business owner and wish to protect your business and employees.
Business Overhead Disability insurance will not typically pay to replace your salary. If you are looking for something that would replace your salary while you are recovering from an accident or illness, you will need a personal Disability Income insurance plan.
As a kid I walked to junior high school. I had to pass by Eddie’s Market.
Back then we could recycle glass “pop” bottles. I would get a nickel for every bottle I returned. I learned fast that if I recycled them at Eddie’s Market I could exchange 1 penny for 1 piece of candy. For a 12 year-old kid, that was a valuable lesson in economics.
By collecting “pop” bottles along the fence-line, I always had some spending money in my pocket.
Now that I am a grown up, I realize that Eddie’s Market was not just for kids on their way to school. Eddie’s Market was not much different from Olsen’s mercantile in the Little House TV shows. He carried a hodge-podge of goods that people in the neighborhood might need.
Today we would call Eddie’s Market a convenience store.
Sadly, the last time I was in the town in which I grew up, I noticed two depressing things.
- My junior high school had suffered a fire and burned to the ground.
- Eddie’s Market no longer exists. There is now an empty lot where Eddie’s Market used to be.
Why am I sharing this story? I am not proposing that our society regress to the world of 1970, although when I look at the number of obese children in our nation, I realize that it would not hurt them to do a little more walking to school.
Neither do I advocate returning to the days when soda was sold in glass bottles. More than once I have had to pull glass out of my feet because I walked in my bare feet where someone had dropped a “pop” bottle.
My point is that, just like Eddie’s Market, the days of finding everything you need at one insurance agency are numbered.
There is a huge difference in laws between Property and Casualty insurance and Life and Health insurance. They are two separate disciplines. The only thing they have in common is the word insurance.
Several years ago I thought that I was pretty smart and able to keep up with trends for both P&C and Life & Health. I was wrong. In 2006 I made a choice to drop my P&C license to concentrate on Life and Health insurance. With recent changes to health insurance, I am wondering if that was a mistake.
However, I believe that people need a professional who understands current facts about whatever line of insurance people want. I believe that it would have been impossible for one person to keep track of the major changes that have happened in the health insurance industry at the same time they were trying to keep track of insurance regulations regarding insuring your car and home.
State and federal laws require agents to certify annually or biannually that they know what they are talking about for Medicare Advantage, Medicare D, Long Term Care insurance and Annuities. Life & Health insurance agents are also required to have training in recognizing Money Laundering.
Insurance agents who work exclusively with Property and Casualty insurance are not required to take those courses. They have other continuing education that they are required to take.
In addition to the different training classes they have different focuses. I am a Life & Health insurance agent. My focus is on setting up a plan that assures that there will be enough money for you or your heirs if you get sick, injured or die.
The P&C agent’s focus is on making certain that you are restored to your original financial condition if you suffer a loss to your property.
The bottom line is that unless you have done your own research to know what you want before you go to your insurance agent’s office, I believe that the local insurance version of Eddie’s Market, is not for you.
It may be convenient to buy all your insurance in one place, however, if you have to rely on the advice of an insurance agent for anything other than something simple, there is a good chance that the one giving you advice is not an expert. He/She may only know a little more about a line of insurance than you already do.
For example, I consider myself an expert on health insurance. However, when it comes to insuring a car or house I am worthless. I know enough to advise you to seek counsel from someone who is current with their knowledge about Property and Casualty insurance in your state.