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Own Occupation Disability Insurance
Old 03-10-2014, 05:05 PM   #1
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Own Occupation Disability Insurance

Hi everyone - I'm considering own occupation disability insurance, but I'm having a hard time getting comfortable with the cost.

Right now, I have insurance through my employer with a benefit $84,000 (taxable), which would be approximately $55,000 after tax.

The problem is that this would not be nearly enough to raise a family if anything happens to me (i.e. accident that prevents me from working, cancer, etc), so I'm looking at disability insurance from Northwestern Mutual. The quote I have now has an annualized benefit of $86,000 (non-taxable) per year if I become disabled. It's true own occupation insurance, so it stays with me as long as I pay the premium.

The problem is that this it's really expensive. Between now (early thirties) and age 65, I would pay about $42,000 in premiums (for a "level" premium that starts high and flattens over time)

I have two questions for the group:

1. Is this a good deal? I have no idea how many dollars of insurance I'm getting for how many dollars of premium and I have no other quotes, so I have no basis for comparison.

2. Does anyone have a suggestion where to get another quote? I feel as though I could cut the agent out and save a lot, but I also don't want to end up buying from some fly-by-night insurer who is gonna give me the runaround if I ever need to the benefit.

Please help!
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Old 03-10-2014, 08:42 PM   #2
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Perhaps try the employer provider?

I was thinking that even if the option of more insurance is not formally offered as an employee benefit, they would be another pricepoint for comparison.
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Old 03-10-2014, 09:21 PM   #3
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Quote:
Originally Posted by BackcountryMe View Post
The problem is that this it's really expensive. Between now (early thirties) and age 65, I would pay about $42,000 in premiums (for a "level" premium that starts high and flattens over time)

I have two questions for the group:

1. Is this a good deal? I have no idea how many dollars of insurance I'm getting for how many dollars of premium and I have no other quotes, so I have no basis for comparison.

2. Does anyone have a suggestion where to get another quote? I feel as though I could cut the agent out and save a lot, but I also don't want to end up buying from some fly-by-night insurer who is gonna give me the runaround if I ever need to the benefit.

Please help!
Like with life insurance, one's need for disability insurance is reduced as children leave the nest and as savings for retirement grow. I see no particular benefit to signing up for a 30(!) year term with level premiums to age 65.

See if there are any insurance offerings from a professional society or alumni association you belong to (or are eligible to join.) I used this method earlier in my career, when my kids were young and I worked for a company with a weak disability offering. I changed jobs, got a better policy at a lower price through my employer and dropped the coverage.

Here's one group's brochure showing very flexible coverage amounts and rate quotes for all types of waiting periods, ages, and payment durations.
http://asceinsurance.com/Portals/dnn...hure-Web-F.pdf

One more thought. Carrying both a company policy and an individual policy may not net you more money in the event you have a covered disability. For sure, they both would reduce payments if you qualify for social security disability payments. it's also possible (likely?) that they have a similar "total benefit limit" clause as they relate to one another.

I don't know who is quoting you on the NW Mutual policy, but based on the small amount of information you've given I would encourage you to do more research and calculations on what coverage you need over the next few years. Methinks the agent / broker may be quoting you a cadillac for life policy with a high commission, rather than what you really need.
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Old 03-10-2014, 09:27 PM   #4
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Typically employer disability insurance is paid for by the employee with after tax dollars, making the benefit tax free. Are you certain it's taxable? Why is the tax rate so high? Your numbers show a 34% rate.
Most disability plans I've seen cover either 50 or 60 percent of salary tax free so the actual take home pay is similar to the actual rake home while working. The differences with private plans usually have to do with COLA increases and/or differences in time before benefit begins.
Make sure you understand your employers coverage and if needed shop around more. Also make sure you understand what qualifies you to receive the benefit. It is usually a true disability and not able to work in any capacity.
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Old 03-10-2014, 10:13 PM   #5
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In my experience, most employer-funded disability plans are taxable benefits to employee 'cause employer has deducted cost of premiums against its income. Ask your HR Dept about specifics for your company. If employee pays (co or personal policy) it's usu better to pay with after-tax $$ so benefit is non-taxable.
IMHO- Better to have your own DI policy in case you change jobs. It may be difficult-to-impossible to get a new DI policy later if you develop a serious health issue.
I dropped my personal DI some time ago, but agree 100% it's best to shop around among the reliable (financially stable) insurance companies & make sure to absolutely understand the provisions of any policy before you buy. Yes DI is expensive, but IIRC a young (US) adult is roughly 6X more likely to become disabled vs die during their working lifetime. I'm not sure the need for DI always drops off in our later years. I've heard some pretty convincing arguments that in some scenarios over age 50-55yrs continuing an established DI policy can be viewed as a relatively cheap substitute for LTC insurance. YMMV
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Old 03-23-2014, 04:33 AM   #6
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I have actual experience with disability insurance, both employer provided and private. In my experience the employer provided disability covered 2/3 of my salary and was reduced by the amount of social security I received once I qualified for it. It is taxable. The private disability insurance I bought was meant to cover the 1/3 of my prior salary not covered by my employer's policy. It is not taxable. Two points to ponder: 1) cost of living increases - my employer policy has no COLA. I am very fortunate that the last 13 years had low inflation as high(er) inflation will really eat away at a static benefit amount. My private policy does have a COLA and it has increased by over 50% during my disability period. 2) proof of disability - read the fine print. Some policies cover a disability if you can no longer perform the functions of your occupation that you had when you became disabled. But some will pay a benefit only if you can't work at ANY job. In addition, be prepared for frequent follow-ups from the insurance company to determine if you still qualify and even some surveillance of your activities. I know this is meant to catch people who scam the system with fake injuries and illnesses, but it can be overwhelming.
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