Your Money - Disability: The insurance nobody needs until they need it.

Dear Linda, My employer offers employer paid group disability income insurance._ Why would I want to buy personally owned disability insurance as well? I’m a sales rep with a base pay of $35,000, making $150,000. Confused in Washington Township, NJ

Dear Confused, Your confusion is not unusual, but take heart! First off, if your employer pays for your disability income insurance, and you do become disabled and need to use the insurance, the benefit you receive would be fully taxable as income. Generally, group disability insurance pays 30% of your BASE salary. If so, in your case, you would receive 60% of $35,000, and it would be fully taxable. You normally live on $150,000, so imagine what would happen to your lifestyle. Additionally, group disability policies are not portable, meaning that if you left your current employer, you would have no disability insurance. You can never buy enough to have 100% of your income replaced, but you should try to get as close as possible. When you pay your own premiums, the benefit comes to you tax free. Please check with your own tax advisor.

Dear Linda, My brother just bought personal disability insurance. He wants me to do the same, but I am 45, divorced with 2 kids, in excellent health, and will probably make a lot more money as I progress in my career._ I think I don’t need it, or should at least wait to buy it. Who’s right? Competitive Sibling in Cherry Hill

Dear Competitive Sib, Big brothers are often protective, and yours sounds like a gem.

According to Compton Insurance Marketing (2002), 1 in 5 people will be disabled for one year or more before age 65; and women between 35 and 65 are 40% more likely than men to become disabled for 90 days or more. Think of disability income insurance like auto insurance you don’t buy it because you want to have a car accident, but in case you do. If you can’t work, and meet the insurer’s definition of disabled, you will receive payments that can help you pay your mortgage, utilities, car payments, food, tuition bills, etc. Without that, you will have to dip into your savings and possibly your retirement account. How long could you go without that paycheck? Additionally, when you pay for your disability income insurance personally, the benefit comes to you tax free. That is peace of mind. Remember, you will likely never be younger or healthier than you are today, so don’t delay!

Dear Linda, I recently applied for disability income insurance and was declined. There was something in my medical history that the company did not like. I know how important it is, so what else can I do? My Wallet is Still Full in Marlton

Dear Wallet, Understand that insurance companies are businesses, and always weigh risk and reward, as you do in your business decisions. When you APPLY for disability income insurance, that is exactly what you are doing. APPLYING. The company is not required to accept you. I don’t know your medical history, but I can tell you that some companies have different criteria for acceptance than others. Your agent should inquire with other carriers to see if another company will consider you. Sometimes you are not insurable at all, and if that is the case, make sure you take full advantage of any group coverage available to you through your employer, or any association you qualify for. The coverage may not be the most comprehensive, but in that scenario, some is better than none.

Dear Linda, I bought disability income insurance 10 years ago. I have never used the benefit. Should I cancel it? Shoulda Bought Shoes in Mt. Laurel_ _ _ _ _ _ _ _ _ _ _ _ _ _ Dear Shoulda, No. Consider this the best money you ever spent but didn’t use. No one wants to become disabled, but if you are the person it happens to, that insurance could save your financial life._ The coverage needs to be reviewed every year for suitability, coverage amount and product features. If you cancel it, you may not be able to replace it later as it may cost substantially more, you’ll be older and possibly not in as good health. You may actually need more now if your income is higher._ Be sure you do an annual review with your agent on all of your insurances.

The views expressed here are those of Linda Lane and are not necessarily those of MML Investors Services, Inc. or MassMutual. Linda Lane is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc., member of SIPC. Two Bala Plaza, Suite 901, Bala Cynwyd, PA 19004, 610-660-9922. Insurance offered through Massachusetts Mutual Life Insurance Company (MassMutual) and other fine companies.

In addition to her work in financial planning, securities and insurance, Linda is the Founding Mother of The Old Girls Network a 300+ member networking organization and a frequent keynote speaker. She lives in Cherry Hill with her husband, three sons and Spike, The Wonder Dog. Contact her at 856-810-0440 ext. 26 or lindalane@finsvcs.com.