How Much is Enough Disability Insurance?
Our industry teaches us that for personal income replacement the answer is 65% – 75% of income. This understanding is seconded by third party resources such as the U.S. Labor Department, concluding the same percentage of replacement is required; and an independent survey by U.S. News & World Report discovered exactly the same amount of income replacement is critical if one is to survive a disability without having to sacrifice their current lifestyle.
Long Term Disability plans set out with this goal in mind, but one runs into a problem when their income reaches the maximum issue and participation cap. At that point the benefit amount falls short of the proposed insured’s needs. The Individual Disability plans available from traditional carriers start off insuring around 65% of income but for people whose earned income is $150,000 per year or more, the insurer reduces the percentage of income that will be insured.
Higher income earners now have the problem of obtaining proper levels of disability insurance. We refer to this as reverse discrimination. Practical solutions with participation limits of 65% – 75% of income, regardless of the amount of income earned are now available.
People are living longer, feeling better, and are not enticed by great pension plans to retire young or withdraw from a successful firm. At age 60 most people have peaked and are at the top of their games. Often times they are even more vulnerable from a “need for income” standpoint than their younger associates. Perhaps their retirement plans were badly crippled in the recent recession, or life changes have made it a necessity to work for a living. Most traditional carriers only issue coverage up to age 63 and have even younger cut off ages for some disability plans such as BOE and Buy/Sell. New plans are ready to assist with Disability Insurance plans considered for the working citizen even into their 70’s.
Petersen International Underwriters provides solutionsto high income earners and senior aged income earners.