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Determining the Need for Disability Income Insurance
By David Chazin
No one likes to think about becoming disabled. But it happens far more often than you may think. According to the Social Security Administration, a 30-year-old worker has a three-in-ten chance of becoming disabled before reaching retirement age1. The Department of Health and Human Services estimates over 50 million people have some type of long-lasting health condition or disability.2
Basically, a disability is any condition that makes it difficult or impossible for a person to perform one or more activities of everyday living, such as moving around, getting dressed, or communicating with others. A disability might be physical, such as mobility impairment, blindness, or deafness; mental, including learning disabilities, Alzheimer’s, and depression; or developmental, such as Downs Syndrome or autism.
Without an adequate backup plan, an unexpected period of disability could wipe out your personal savings and investments in short order and, potentially, leave you and your family with no income. Therefore, we recommend that anyone who works at Chevron to include disability income insurance in their overall financial plan.
If you have insurance through Chevron, take a close look at the policy. Find out just how much coverage you have. Be sure you have a clear understanding of the circumstances under which you would receive benefits, how much you would receive, and for how long.
The Chevron group long-term policy covers 60 percent of an employee’s salary. These benefits usually are taxable income, so the amount you’ll actually receive will be less. Also, be aware that the definition of “disability” differs from one policy to another. Read the policy’s fine print and ask questions to Chevron’s benefits office if you’re not clear about the limits on your coverage.
You can also look into an individual policy but when you buy disability insurance for yourself, do your homework carefully. Don’t duplicate any group insurance you already have. Look for a policy that classifies you as disabled if you’re unable to perform your regular job at Chevron ¾ as opposed to being unable to perform any job ¾ for a certain period of time.
Many policies pay benefits only in the event of total disability. So, if you can function on a part-time basis at your regular occupation, you won’t be able to collect any benefits. For an additional fee, you can add a “residual” rider to your contract, which will give you coverage even if you are able to earn some income.
Fine-tuning Your Benefits at Chevron
As you compare different policies, pay attention to how long you must wait to start receiving benefits after becoming disabled. Under a standard contract, you may have to wait as long as 90 days. For a small cost, you can choose a shorter waiting period. With most policies, disability payments end when you become eligible for Social Security retirement benefits. Adding a rider to your policy can extend your coverage for life at a cost but you need to determine if you want this coverage, since most Chevron employees retire before becoming eligible for Social Security retirement benefit.
Some policies offer inflation protection so that your benefits keep pace with increases in the cost of living. Others allow for projected increases in benefits to compensate for the raises you might have earned on the job. In addition, you might want to consider adding a catastrophic disability benefit (CDB) rider. A CDB rider provides additional benefits if you should suffer a major disability that results in expenses that go beyond your normal income needs, such as the cost of a home health-care aide.
Your ability to earn an income from Chevron is one of your biggest assets. It’s your means of achieving your life goals and providing your loved ones with financial security. So insuring that income with disability income insurance makes good sense.
We’d be happy to sit down with you and discuss some ways to make sure your best taken care of in the chance you become disabled. Because we work with Chevron executives, managers, employees and retirees, we're knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of our Chevron clients and you can ask them how working with an advisor has helped them.
Please contact us at (925) 659-0217 with specific questions or to schedule a time to meet in our San Ramon, Point Richmond or Houston, TX offices. Also, follow us on LinkedIn.
1AHIP Survey Finds Workers Underestimate Likelihood of a Disability, and Over Estimate Resources Available When Disability Occurs, AHIP document 4906 document, November 18, 2004. America’s Health Insurance Plans, Washington, DC www.ahip.org/content/pressrelease.aspx?docid=4906
2AHRQ Focus on Research: Improving Health Care for Americans with Disabilities. AHRQ Publication No. 02-M016, March 2002. Agency for Healthcare Research and Quality, Rockville, MD http://www.ahrq.gov/news/focus/focdisab.htm
David Chazin, Insight Wealth Strategies, and Lincoln Financial Advisors Corp. are not affiliated with Chevron.