Disability Income…. The Forgotten Need. DI Statistics Leaving It All To Chance.
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Transcript of Disability Income…. The Forgotten Need. DI Statistics Leaving It All To Chance.
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Disability Income….
The Forgotten Need
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DI Statistics
Leaving It All To Chance
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Disability vs. Other Events
• In any single year:
– Death – 1 out of every 106 people– Home fire – 1 out of every 88 homes– Serious auto accident – 1 out of every 70 autos– Disability – 1 out of every 8 people (at least 8 days)
Sources: National Safety Council American Society of Actuaries Commissioners’ Disability Table National Center for Health Statistics
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Causes of Foreclosure
Cause All MortgagesDeath 3%
Disability 48%
Disability is 16 times more likely than death to cause foreclosure:
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Many of the conditions that once would have killed people are leaving them disabled instead
100%
50% 35%55%
13%
65%
38%34%
INCREASESIN
DISIBILITY
-71%
-74%-27% -36%
-47%-49%
-14%
-37%
Hypertension Heart Disease Cerebrovascular Diabetes
Men Women
DECREASES IN
DEATH
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Chances of Disability
Percentage of people who can expect to suffer a disability lasting
At least 90 days before reaching age 65
Age Percentage Disabled
25 52% 1 out of 2
30 51% 1 out of 2
35 48% 4 out of 9
40 45% 4 out of 9
45 40% 2 out of 5
50 34% 1 out of 3
55 27% 1 out of 6
60 16% 1 out of 6
Source: Commissions Disability Table
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Chances of Long Term Disability
If a disability of 90 days or more lasts two years, it will Probably continue longer, even for life”
Age when disabled
90 days:% still disabled after 2
years and 90 days:% still disabled after 5
years
25 63.5% 44.2%
35 69.7% 52.6%
45 73.6% 58.0%
55 77.6% 59.6%
Source: Commissioner’s Disability Table
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If Disability has Continued for Two Years at the End of Five Years…
Age at disability
Source: Health Insurance Matters 1992
10% 12%
20% 27%
44%34%
22%12%
46%
54% 59% 60%
25 35 45 55
Will have died Will Have Recovered Will Still Be Disabled
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The Need
Popping the Question
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Social Security Facts
Definition of Disability
Inability to engage in any substantial gainful activity by
reason of any medically determinable physical or
mental impairment which has lasted or could be
expected to last for a continuous period of 12 months
or result in death. Impairment must be so severe that
the individual is unable to engage in substantial
gainful work that exists in the immediate area in which
the applicant lives; a specific job vacancy exists;
the applicant would be hired
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Social Security Facts (cont.)
Denial
Reconsidered
Hearing
Appeal
Initial
Strict RequirementsAverage Benefit: $570/month Denial Rates
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Personal Insurance
If your Three Most Valuable Assets Were Worth:
$20,000
$200,000
$2,000,000
Which Would You Insure?
Do you have your car insured?
Do you have your home insured?
Doesn't it make sense to have your income insured?
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Comparing Insurance Costs
House value = Odds: 88-1
Homeowners premium =
Ratio: Premium to value (coverage) =
Car value = Odds: 70-1
Automobile premium =
Ratio: premium to value (coverage)
Life insurance face amount Odds: 106-1
Life insurance premium =
Ratio: premium to face amount =
Lifetime DI benefit = Odds: 8-1
DI premium =
Ratio: premium to benefit =
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Potential Earnings to Age 65
Monthly Salary
$2,000 $3,000 $4,000 $6,000 $8,000 $10,000
Age
25 960,000 1,440,000 1,920,000 2,880,000 3,840,000 4,800,000
30 840,000 1,260,000 1,680,000 2,520,000 3,360,000 4,200,000
35 720,000 1,080,000 1,440,000 2,160,000 2,880,000 3,600,000
40 600,000 900,000 1,120,000 1,800,000 2,400,000 3,000,000
45 480,000 720,000 960,000 1,440,000 1,920,000 2,400,000
50 360,000 540,000 720,000 1,080,000 1,440,000 1,800,000
55 240,000 360,000 480,000 720,000 960,000 1,200,000
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Amount of Lost Portfolio Value of Retirement Plan Investment
Age at Disability Portfolio Value loss at age 65*
30 $30,430,000
35 $15,028,000
40 $7,371,000
45 $3,564,000
50 $1,671,000
55 $730,000
* Based on an annual contribution of $30,000 invested at 15% rate of return.
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Business Insurance
• If your customers rely on your services, could you keep business while recovering from a disability?
• If a partner became disabled, where would you find the money to buy-out his or her share of the business?
• If a key executive became disabled, how would you make up for lost profits?
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Disability: a 7-Way Loss
• Loss of health
• Loss of future earnings
• Loss of insurability
• Loss of assets
• Loss of self-respect
• Loss of peace of mind
• Loss of credit rating
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Working
Income
Expenses
Savings
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During Disability
DebtExposure
Income
Expenses
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Making Decisions…Should You Buy Disability Insurance?
Buying Disability Insurance:If you never became disabled and you didn’t need this policy
Your Mistake: $183 per month
But
If you became disabled and you didn’t have this policy
Your Mistake: $1,500,000 lost benefits
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Making DecisionsShould You Buy Disability Insurance? (cont.)
If we assume today’s decision becomes a mistake, which would you rather make?
a little mistake
Or
THE BIG MISTAKE?
Income Replacement Proposal – Tax Free Benefits
Designed for: Prospect Age 40
Monthly Benefit
Annual Benefit
Waiting Period
Total BenefitMonthly
Cost
$5,000 $60,000 90 days >$1,500,000 $183
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Disability Coverage Can Be Used For:
• Living expenses
• Mortgage protection
• Waiver of premium
• Retirement funding
• Business overhead expenses
• Buying out a partner
• Replacing a key employee