Facing a disability can upend finances, shatter psyches, reshape relationships, and transform societal roles. A disability impacts not only the individual disabled but family members, friends, caregivers, and society. It is often a risk that is put on the backburner, something that only affects the lives of other people. This thought process is unfortunately flawed. Per the Social Security Administration, “The sobering fact for 20-year-olds is that more than 1-in-4 of them becomes disabled before reaching retirement age.” Addressing a disability, whether temporary or permanent, involves an interdisciplinary team approach to managing various factors. This article will explore disability in two separate parts - planning for a disability and facing a disability. Planning for disability is a critical step and should be considered as often as other risk management and legal measures (i.e. property and casualty insurance, life insurance, health insurance, estate planning, etc.).
Planning for a Disability
Often, the need for disability planning is overlooked, or not thoroughly reviewed until after a disability takes place. Having a plan in place can help mitigate some of the consequences of a disability and provide needed resources for a successful transition. Below are a number of items to consider as part of a disability plan:
- Disability Insurance: Insurance used to protect future earnings and replace a portion of income in the event of a disability.
- Group Disability Insurance: Group disability insurance can be acquired through an employer or even a professional association. Group disability benefits often cover all eligible members, regardless of their health, and premiums come at a set price based on age. In addition, an employer will often assist with the cost of premiums. Group disability policies can be both short-term and long-term. Short-term disability policies have a shorter waiting period and may bridge the gap until long-term disability benefits begin. Group disability policies vary, so it’s important to review the actual policy to understand the coverage in place as well as the definition of what a qualifying disability is. It is also important to know that group disability policies are often not portable, meaning you’ll lose the benefits if you separate from your employer or group.
- Social Security Disability Insurance: Social Security Disability is a social insurance program that is paid into by workers’ earnings via Social Security taxes. Social Security strictly defines a disability as unable to work due to a severe medical condition that has lasted, or will last, at least one year or result in death. Social Security Disability payments are modest, and may or may not be enough to cover your needs or the needs of your family. Note: A group long-term disability insurance carrier will often require you to file for Social Security Disability benefits at some point, and the Social Security benefits will often offset the group disability benefits.
- Private Disability Insurance: Private disability insurance is coverage acquired individually from an insurance carrier. Only the individual is being underwritten, thus private policies often come at a higher cost than group policies. Private policies can be customized to fit the needs of the applicant, and may even complement group disability or Social Security Disability coverage. Individual policies are portable, ensuring continual coverage as long as the premiums are paid. In addition, you’ll pay for private disability after tax, rather than before tax, meaning benefits received will be tax free.
- Powers of Attorney: Powers of Attorney are only a piece of a complete estate plan but relate directly to a disability. These legal documents appoint an agent to act on your behalf in the event of incapacitation.
- Durable Power of Attorney for Healthcare: A Durable Power of Attorney for Healthcare is a legal document that allows you to designate an agent to make healthcare decisions on your behalf in the event of incapacity.
- Durable Power of Attorney for Finance: Like its counterpart, a Durable Power of Attorney for Finance is a legal document that allows you to designate an agent to make financial decisions on your behalf in the event of incapacity.
- Emergency Savings: Savings on hand to be used in the event of an emergency.
- Adequate funds on hand in the event of an emergency are critical, and these earmarked funds should be held in cash equivalents to preserve principle. To earn more than a typical checking account, one may consider a money market account, a savings account, or even CDs. One should also explore offerings by both brick-and-mortar banks and online banks. The amount to save in case of an emergency is subjective, but a good rule of thumb is an amount capable of covering three to nine months of spending.
The above items should be thoughtfully considered and discussed with a trusted financial advisor as it is important to know some of the basic resources to help protect you and your loved ones. The above list is not exhaustive and there exists a multitude of additional tools and resources that can be helpful in the event of a disability.
The upcoming Part Two of this article will shift focus from planning to action in the event one is faced with a disabling condition. The options available to disabled individuals and their loved ones are overwhelming, and often resources can be overlooked if not knowledgeable about them. Part Two will explore various resources available to disabled individuals to educate and empower them on their journey.
All information herein has been prepared solely for informational purposes only and opinions are subject to change. Past performance is not indicative of future results and all investments involve the risk of loss of principle. For information on how these general principles apply to your situation, consult an investment professional.