Go hunting before
you're hurting: At-home disability policies scarce
you went out on your own, you had insurance on your house, your
car, and your life, and took out insurance for your business. But
if you're like a lot of work-from-home business owners, you didn't
insure your biggest asset -- your ability to earn an income.
"Our future earning potential is the largest
potential asset most of us have," says Tom Wildsmith, policy research
actuary at the Health Insurance Association of America. "If you
think about what you make in a year, multiply 20 to 30 years of
it, that can be a boatload of money."
Disability insurance (DI) replaces a person's
income in the event an accident or illness makes it impossible to
work, which is the cause for nearly half of all mortgage foreclosures,
according to the Department of Housing and Urban Development.
"We call this the selfish insurance," says Dave
Evans, vice president of Retirement and Financial Planning with
the Independent Insurance Agents of America. "If you die, someone
else is on the hook for the bills. With disability, you're still
there. If someone isn't currently eligible for Social Security,
this should be their numero uno priority."
Still, only about 40 percent of working adults
have some form of long-term DI, Wildsmith says.
Fear of getting rejected
For the self-employed who work out of home or in a small office,
the reason for not having a policy may well be that they've already
been turned down. Access to coverage varies wildly, depending on
your job, your income, your age and your medical history. Premiums
will be based on similar variables; roughly, they run from $750
to $1,500 a year, but could go much higher, based on your risk category,
how much money you earn and when you want it to start coming in.
The self-employed may have the hardest time
of anyone to find DI because several insurers -- including State
Farm and UnumProvident,
the nation's largest DI provider -- will not cover individuals who
work at home more than 50 percent of the time.
"What they're finding is injuries occur at home
a lot more than in an office setting," says Peter McCann, president
Insurance Brokerage Services, a Boston-based company that finds
insurance for independent professionals. "If you're at home a lot,
your chance of getting injured goes up. If I'm at an office, there's
OSHA regulations looking over me. At home, I'm stepping over toys.
That's the premise the underwriting community has taken."
Others won't cover particular occupations because
it's difficult to determine when a person can't perform the "material
and essential" elements of the job.
"It's not the occupational hazard," Evans
says. "It's the nebulous, 'How do you determine they're disabled?'"
Once you have it, you
can't lose it
Another reason disability insurance can be tough to get is because
it isn't like car insurance, where you can be dropped for submitting
too many claims. Unless the insurer decides to stop writing policies
for your entire classification, you've got insurance until you reach
retirement age, no matter how many times you file a claim. They
may be able to raise your rates, but they can't yank your coverage.
For all the difficulties, disability insurance
is available, but you have to be persistent, you have to know what
you want and it's critical that you understand what you're buying.
Life, for example, a leading provider of DI, has just introduced
a policy that targets individuals who work from home up to 100 percent
of the time. It requires you have to be younger than 56, have been
in business for at least three years and have taxable income after
business expenses of more than $35,000 a year.
It's guaranteed renewable, non-cancelable, "own
occupation" policy with the option to purchase additional benefits.
The elimination period is 90 days.
Own occupation? Elimination period? What's all
that jargon? Read on. We'll explain, but first, the most important
definition you need is of the word "disability."
Talk at length about it with your insurance
agent. If you think that you're disabled because you can't do your
current job, but the insurance company's definition centers on your
ability to do any job, you could find yourself in a spot.
Your job or any job?
On the high end of coverage, total disability translates into
'own occupation,' which an agent may rattle off as 'own occ' coverage.
"With 'own occ,' you are totally disabled if
you can't perform the duties of any occupation for which you're
reasonably trained by way of education or background," Wildsmith
explained. "If you're a doctor, you'll never be asked to drive a
cab or be a desk clerk at a motel because it's not consistent with
your background, education and training."
On the low end, Social Security disability coverage
only kicks in when you can't work at any position in the national
economy, whether or not the position actually exists or you would
be hired for it.
"The Social Security definition goes, 'Can you
fog up a mirror and do any job?' " Evans says.
You also need to understand that disability
insurance won't pay as much as you were accustomed to making. Most
policies will give you about 60 percent of what you earned before
you became disabled -- the idea is to give you enough to cover the
bills but not enough to encourage bogus claims. Some work-related
expenses vanish, such as transportation, so you should be able to
pay the bills. Be prepared to show your agent at least your last
two tax returns to prove your income.
DON'T take a tax write-off
Under no circumstances should you take a tax write-off on your
premiums. Uncle Sam will get his share of the dollars one way or
another, and it's far better to pay the taxes on the premium while
you're earning an income. Then, if you ever need the benefits of
the policy, that monthly income is tax-free. If you take the tax
break now, you'll be paying taxes on thousands of dollars in income
at a time when you're flat on your back and need every nickel.
Along the same lines, look for a policy with
a waiver of premiums. That means that if you become disabled, you
won't be giving part of that monthly benefits check back to the
insurance company as a premium payment.
Decide ahead of time how many days you can go
without income, and then set your policy's deductible accordingly.
Disability insurance deductibles are measured in days, not dollars,
so the longer your deductible, the lower your premium.
The policy will include elimination periods,
which is the amount of time that's not covered. They run in 30-day
increments; if you have a 30-day elimination period, it means that
you start building up benefits a month after you file your claim.
That doesn't mean, though, that you get a check on Day 31. The insurer
starts paying into your account on that day, and you'll get your
first check on Day 61.
While you're checking out the terms, Evans says,
check out the company, too.
"Deal with a company that's filed and admitted
in your state that has at least an A rating," he says. "Quite frankly,
I like an A-plus. Remember, they may be paying claims for 20 to
The top-of-the-line policy also will be non-cancelable
and guaranteed renewable. That means you'll never be dropped,
and your rates will never go up. Most policies available through
professional associations are guaranteed renewable alone, which
means you can't be dropped, but your premiums can be raised. They're
also usually 'any occupation' policies. The price difference between
an 'own occ' and 'any occ' policy could be as much as 25 percent
on a product you may never use, so you need to decide what's really
important to you.
"I could not in all honesty say which a person
should buy," Wildsmith says. "Do I want to buy Chevy or a Lexus?
Just think it through."
Pat Curry is a freelance
writer based in Georgia
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-- Posted: Aug.