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Go hunting before you're hurting: At-home disability policies scarce

Disability insurance for SOHOsWhen 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.

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Fear of getting rejected -- again
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 of Aquent 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.

Berkshire 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 30 years."

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
If you'd like to make a comment on this story,
e-mail bankrate editors.

-- Posted: Aug. 7, 2000


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