FollowToday I asked a friend of mine, Ed Kelly to chime in on Disability Insurance. Please enjoy this read. And try not to be frightened. There are relatively inexpensive solutions to disability issues.
What is worse than high taxes on your income? NO income!
And no income is what you might have should you become disabled. What if you suffer a serious accident or succumb to a devastating illness? Will your income continue? From where? And how much will it be?
Probably the most overlooked part of one’s overall financial plan is this issue of Long-Term Disability. It is confusing. It changes when we change jobs. If we have coverage at work, we often have very low amounts of coverage.
Let’s look at the basics. First, if you are sick or injured and out of work for a week or two, or perhaps even a month, you probably have sick pay and personal days off that can be used to provide your income. And, if you are paying into your state’s short term disability program, you will have some minimal coverage there, for a minimal amount of time. * By the way, if you are NOT paying “SDI” through your paycheck, then you don’t have this short term state coverage. This often happens with self-employed individuals. They don’t know they have to deliberately select it, and pay into it! (See bottom of the page for help on this.)
But this is all short-term. What if you are disabled for 3 years, 10 years or for the rest of your working life?! Will you have enough income to maintain your lifestyle? This is a huge gap for most working people. They don’t know what they have or don’t have. They often have little or NO long term disability coverage. And unfortunately, their advisors are not looking deeply into this and providing advice. What are the most common reasons people become disabled for long periods of time?
- Arthritis and other musculoskeletal problems. …
- Heart disease. …
- Lung or respiratory problems. …
- Mental illness, including depression. …
- Diabetes. …
- Stroke. …
- Cancer. …
- Nervous system disorders.
- Accidents (automobile, sports, home, etc.)
Here, let me state this clearly and simply: you need the maximum amount of disability insurance that you can obtain from an insurance company (the maximum they will usually issue, is about 75% of your current income). If you have the standard 60% of base income at work through your employee benefits program, great. But that is almost always not enough. Did you know this coverage does not go with you when you change jobs? Did you know it does not cover bonuses, stock options or 401(k) matching. It only covers your “base” income, and usually only at 60%. Worst of all, if your company pays for it, that seems nice now, but if you collect, that 60% will be fully taxable. If YOU pay for it, the income will be fully tax free. Do you know how yours works?
What about Social Security Disability Income (SSDI)? Can’t I just count on this? You may, or may not be able to collect this insurance. Many people need to hire attorneys to seek these payments, as they are often hard to obtain, even if you are legitimately disabled. Even if you are found eligible, the average monthly payout is only $1271/month. Can you live on that? The good news is that SSDI will continue to pay (assuming your disability is ongoing) until your Social Security retirement is available.
This, as you can tell, is an ongoing planning issue, one that needs to be evaluated and dealt with every year (as jobs change, incomes change, spouses’ incomes change, etc.). If you don’t have someone to have this conversation with you annually, I can introduce you to good people who WILL have the right conversations with you. Send me a note.
I probably should add here that we are talking about Long Term Disability insurance, which pays you income if you cannot work. This is different than Long Term Care insurance, which pays for your cost of care, should you need someone to come into your home to provide care (usually as we get older), or for a home-care facility. I will cover this in an upcoming blog.
- California Short Term Disability will pay for a maximum of 52 weeks. If you make $128,298 or more, you can collect up to $1357/week. SDI is usually not taxable.
- If you are self-employed and would like to enroll in CA State Short Term Disability, here is the form: https://www.edd.ca.gov/pdf_pub_ctr/de1378di.pdf
Let’s make 2021 the year where we all take personal responsibility for our life insurance, disability insurance, and for long-term care. We can help you.
Contact Kevin Thompson CPA
kevin@kevinthompsoncpa.com or call him @ (310) 450-4625 x102
