The delusion of invincibility
By Steve Savant
Ash Brokerage Corporation
Like all athletic American males, I was indestructible. I felt I was bordering on the immortal. I lived like I was invincible.
My wife and I were playing a doubles tennis match on a warm spring morning. We were both in our late 30s. I was still playing competitive industrial softball and was in the best shape of my life. I was covering the net like a hockey goaltender, turning away volley after volley.
I lunged to my left to return a bullet at the net. Then I heard a loud pop, felt a strange sensation in my leg like a rolled up window shade and I dropped to the court, writhing in excruciating pain. I had torn my Achilles tendon, and it was bad. I couldn’t stand up. I couldn’t walk. I went to the hospital and had my Achilles tendon reattached. Back then, the rehab for this injury was long and arduous. But worse than that, my daily routine came to a shrieking halt.
I couldn’t drive my car. I was on crutches for almost three months. When I started rehab, I wore an elevated heel. Every week, the shoemaker would shave a little off the heel until a few months later, it was finally the same size as my other shoe.
I strutted around with a cane for months. After my 30-day elimination period, my disability benefits began arriving in my mailbox like clockwork. Not because I had understood the value of paycheck protection, but because my general agent had made me purchase it.
He made his producers purchase every policy we sold. It was part and parcel of his sales process. He’d always bellow down the hallway, “You can’t sell what you don’t own.” And we were required to carry a duplicate copy of our personal polices in our briefcase at all times. It became part of the “close” in my sale pitch. Now I was living the dream … well, more like a nightmare. If he hadn't make me purchase a disability policy, I would have been in dire financial straits.
Many people mistakenly believe that their biggest asset is their home. And of course it’s mandatory to purchase home owners insurance. But in reality, our biggest asset is the ability to work and earn an income. Not being able to work due to a job loss or a disability is often financially devastating. I can’t imagine how my young family would have made it through my disability without the coverage. The economic loss due to a disability of any duration can be determined as the loss of “net” earnings (subtracting taxes and personal consumption), and includes the dollar value of employee fringe benefits, as well as the dollar value of the household services the individual could have provided.
Everyone who works for a living is familiar with what can happen if they lose their job. On the other hand, the possibility of a serious disability is a risk few seem to consider. How likely is it that you will become seriously disabled? According to one study, 30 percent of all Americans between the ages of 35 and 65 suffered a disability lasting at least 90 days1. The risk is real. The question is, “What to do about it?
Don’t count on Social Security
A few individuals do manage to qualify for disability benefits from Social Security. However, the Social Security definition of “disability” is so strict that, in 2011, only 35.2 percent of initial claims for Social Security disability benefits were accepted2. Obviously, something beyond Social Security is needed.
Group disability insurance
Many employers will provide or make available disability insurance on a group basis. However, even those who are covered by a group policy can still be at substantial risk. Employer-sponsored disability policies seldom replace more than 60 percent of your monthly salary. Further, many policies have a monthly maximum benefit that may be far less than what some people earn.
Income taxes can also be an issue; if the employer is paying the full cost of the coverage, and not including it in the employee’s income, disability benefits are fully taxable. If an employee pays for disability insurance with after-tax dollars, the benefits are received free of income tax.3
Individual disability income insurance
If group coverage is not available, the solution may be individual disability income insurance. Although individual policies can cost more, as long as you pay the premiums with after-tax dollars, the benefits are not taxable. Plus, an individual policy allows you to tailor its terms to fit your own needs. When shopping for an individual disability policy, consider the following:
Company strength: You need to know if the company is financially sound. High ratings and a strong balance sheet can give you some assurance that the contractual benefits will be paid at the time of your claim.
Definition of disability: Look for a policy that defines disability in the broadest terms possible. Some policies will permit you to work in a different occupation and still collect disability benefits. Elimination period: How long must you wait before disability payments begin? There are several elimination periods to consider, and one way to determine your waiting period is how much cash reserves are on hand. Most advisors recommend having a 90-day emergency fund.
Benefit period: How long will you need coverage? Both short-term and long-term disability benefits are available. I had long-term disability when I was injured.
Inflation protection: Try to find a policy that adjusts benefits for inflation. Many advisors use real inflation numbers and not the government’s CPI.
About seven years after I tore my Achilles tendon, I was playing in our annual turkey bowl on Thanksgiving. In the second quarter, I intercepted a pass and ran it back 30 yards. I felt great! Then, with two minutes to go in the half, our defensive coordinator called for a linebacker blitz. I was playing outside left linebacker. I moved up to the line of scrimmage with the rest of our linebackers. I was focused on the center, anxiously waiting for him hike the ball. As soon as he hiked it, I exploded off the line and heard a loud pop and fell to the ground, grimacing in pain. I felt the back of my ankle and again my Achilles tendon was gone, ripped off and rolled up my leg. I had torn the other Achilles tendon. Here we go again!
1 Based upon the 1985 Commissioners’ Individual Disability Table.
2 Annual Statistical Report on the Social Security Disability Insurance Program, 2012, November 2013. Table 60, medical decisions at the initial adjudicative level, by year of application and program, all decisions.
3 The discussion here concerns federal income tax law only. State or local law may vary.
As a contributing author to Back Room Technician, an Advisys Company, I have cited content from their reports with permission of use in the public domain.