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Financial Independence & Disability Insurance
Old 03-01-2015, 09:31 AM   #1
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Financial Independence & Disability Insurance

I'm 40 & my wife if 42 and we are financially independent (yay!) but are still working while we enjoy it, which will probably be only a year or two. Saving more money by delaying ER will just be a nice bonus. I'm thinking that in the meantime we can cancel our Disability Insurance since it's meant to replace lost income that we don't *need*. DW is paying $4800/yr since her employer doesn't offer it, mine is another $800/yr. She's uncomfortable canceling.

Any factors we should consider, or is it a no-brainer to cancel?

Thanks!
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Old 03-01-2015, 09:43 AM   #2
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Once you have ERd, disability insurance is pointess. However, it would be maddening to cancel it now and suffer a disability while still w*rking. My recommendation would be to wait till you finally ER, and then cancel it.
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Old 03-01-2015, 09:56 AM   #3
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A recent thread:
http://www.early-retirement.org/foru...ad.php?t=76145
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Old 03-01-2015, 12:08 PM   #4
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Hi,

Thanks for your answers so far. Reading them causes me to want to re-phrase my question. Another way to ask the group the same question is: when do you think Disability Insurance become pointless - when you become FI or after you RE? I'm in the former camp while my wife and Meadbh are in the latter camp.

@MRG - thank you. The thread you referenced is about someone who will be FI in 9 years, while we are already there. That feels different to me but point out if you disagree.

P.S. If it matters, my wife and I have Professional occupations

Thanks!
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Old 03-01-2015, 12:23 PM   #5
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I waited till RE as my long term was included and Short term less than $250 year. At $5,600 year I'd think differently.

No it doesn't matter what type of work you do, I was a logger and sawmiller for years, luckily only had a few stiches, and a few concussions. Driving into my IT job the only person on I 70 that can't stop is behind me. Just goes to show you can't plan everything.
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Old 03-01-2015, 12:27 PM   #6
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Originally Posted by medelste View Post
Hi,

Thanks for your answers so far. Reading them causes me to want to re-phrase my question. Another way to ask the group the same question is: when do you think Disability Insurance become pointless - when you become FI or after you RE? I'm in the former camp while my wife and Meadbh are in the latter camp.
Disability insurance is to protect earned income. When you retire there is no more earned income, so at that point, if you continue with the insurance, you're throwing your money away.

Insurance in general is to reduce the risk of something happening you cannot afford. Once you become financially independent, by definition, you no longer need to pay to reduce the risk of losing your income, so the insurance becomes pointless IMHO.
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Old 03-01-2015, 01:02 PM   #7
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Disability insurance is to protect earned income. When you retire there is no more earned income, so at that point, if you continue with the insurance, you're throwing your money away.

Insurance in general is to reduce the risk of something happening you cannot afford. Once you become financially independent, by definition, you no longer need to pay to reduce the risk of losing your income, so the insurance becomes pointless IMHO.
+1 I cancelled my private disability plan when I RE'd, then used the $ saved to buy dental ins. for DH and me. Dental ins. for the two of us cost about the same as the former disability premium. It seemed like a good trade-off, as we no longer had dental ins. provided by our employers.
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Old 03-01-2015, 01:09 PM   #8
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Let me demonstrate my logic by illustrating with two hypothetical scenarios:

Scenario #1: You are 40, FI and plan to ER one year from now. You cancel your disability insurance. The very next day, you are severely injured in an accident. You require hospital care, rehabilitation for months, and ultimately need a wheelchair, a hospital bed, catheters and other medical supplies, and physiotherapy and home nursing care indefinitely. You can no longer work, and you have a decreased quality of life. The cost not covered by your health insurance will amount to millions over the rest of your life, which is estimated at 20 years. You have no legal recourse because the accident was your fault. Your NW is no longer sufficient. You end up destitute and your kids get no inheritance.

Scenario #2: You are 40, FI and plan to ER one year from now. You decide (as I did) to keep your disability insurance for the next six months, knowing that the policy has a 180 day waiting period. The very next day, you are severely injured in an accident. You require hospital care, rehabilitation for months, and ultimately need a wheelchair, a hospital bed, braces, catheters and other medical supplies, and physiotherapy and home nursing care indefinitely. You can no longer work, and you have a decreased quality of life. The cost not covered by your health insurance will amount to millions over the rest of your life, which is estimated at 20 years. You have no legal recourse because the accident was your fault. Your disability insurance covers these expenses. Your NW is sufficient to cover other living expenses. You remain FI and leave a financial legacy.

My point is that disability can be very, very costly over time. Permanent disability lasts for the rest of your life, not just while you are working. Just because you have a SWR worked out while you are healthy doesn't mean that that SWR will cover all the expenses you may have if you become severely disabled. It seems to me that it would be a shame not to insure against such a catastrophe while you can. The cost of disability insurance reflects the fact that disability is not as rare as one might think, and when it occurs, it is expensive.

Different people approach risk management in different ways and there is a gender difference. The OP's viewpoint is understandable, as is his DW's.
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Old 03-01-2015, 03:02 PM   #9
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I decided to give up disability insurance the year before I retired but then I went into HR and had a very similar discussion to that of Meadbh above. In my case the company LTDI was about $1k, so I decided to keep it.

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Old 03-02-2015, 08:41 PM   #10
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Sadly, Scenario #1, as described by Meadbh, happened to a dear friend of mine , though with some differences. She had no disability ins. to begin with, she was not prepared to RE, and the accident was not her fault.

Long story short, her van was hit head-on by a trucker who fell asleep and crossed the median. Ten years, countless surgeries, endless PT, and millions in medical bills later, the trucker had sheltered his assets. So when the court awarded my friends a judgment to pay their bills, the trucker had "no money" to pay them. They appealed, but to no avail. The trucker got off scot free, and they have been paying the price ever since. She is unable to work, in a wheelchair, and her husband is her primary caregiver.

Insurance premiums are a small price to pay.

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Old 03-02-2015, 09:21 PM   #11
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Originally Posted by Meadbh View Post

Scenario #1: You are 40, FI and plan to ER one year from now. You cancel your disability insurance. The very next day, you are severely injured in an accident. You require hospital care, rehabilitation for months, and ultimately need a wheelchair, a hospital bed, catheters and other medical supplies, and physiotherapy and home nursing care indefinitely. You can no longer work, and you have a decreased quality of life. The cost not covered by your health insurance will amount to millions over the rest of your life, which is estimated at 20 years. You have no legal recourse because the accident was your fault. Your NW is no longer sufficient. You end up destitute and your kids get no inheritance.

Scenario #2: You are 40, FI and plan to ER one year from now. You decide (as I did) to keep your disability insurance for the next six months, knowing that the policy has a 180 day waiting period. The very next day, you are severely injured in an accident. You require hospital care, rehabilitation for months, and ultimately need a wheelchair, a hospital bed, braces, catheters and other medical supplies, and physiotherapy and home nursing care indefinitely. You can no longer work, and you have a decreased quality of life. The cost not covered by your health insurance will amount to millions over the rest of your life, which is estimated at 20 years. You have no legal recourse because the accident was your fault. Your disability insurance covers these expenses. Your NW is sufficient to cover other living expenses. You remain FI and leave a financial legacy.

My point is that disability can be very, very costly over time. Permanent disability lasts for the rest of your life, not just while you are working. Just because you have a SWR worked out while you are healthy doesn't mean that that SWR will cover all the expenses you may have if you become severely disabled. It seems to me that it would be a shame not to insure against such a catastrophe while you can. The cost of disability insurance reflects the fact that disability is not as rare as one might think, and when it occurs, it is expensive.

Different people approach risk management in different ways and there is a gender difference. The OP's viewpoint is understandable, as is his DW's.
Scenario #3: You are 42, and have ER'd! You decide to end your disability insurance on your last day of work.The very next day, you are severely injured in an accident. You require hospital care, rehabilitation for months, and ultimately need a wheelchair, a hospital bed, braces, catheters and other medical supplies, and physiotherapy and home nursing care indefinitely. You have a decreased quality of life in retirement. The cost is not covered by your health insurance will amount to millions over the rest of your life, which is estimated at 20 years. You have no legal recourse because the accident was your fault. Your NW is no longer sufficient. You end up destitute and your kids get no inheritance.

I don't understand the difference between Scenario #1 and #3. In both, we are each drawing a line for how long you will continue to pay disability insurance. The only difference is each person's risk tolerance on where we each draw the line, right? Some people NEVER purchase disability insurance, some people purchase it until financial independence, some people purchase it until retirement, some people purchase it until age 70, some people purchase it until age 80. Apart from those that pay disability insurance from the first day they work until the day they die, whatever day we each decide to cancel, the next day could bring tragedy.

I'd argue that financial independence is just as reasonable a line to draw as retirement, especially when $5,600/yr is the financial cost in the meantime. Your comments definitely give me something to think about, however.
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Old 03-03-2015, 02:13 AM   #12
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I can continue to pay disability after I leave my megacorp. Would it not be wise to keep the disability insurance even if I am fired / unemployed by choice and not disabled ? Seems like cheap insurance if a disability km were to hit and I was unable to go "back" to work after huge medical bills.
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Old 03-03-2015, 06:10 AM   #13
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Couldn't you still apply for Social Security Disability? Seems to make no sense to have your own policy in addition.
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Old 03-04-2015, 03:13 PM   #14
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I can continue to pay disability after I leave my megacorp. Would it not be wise to keep the disability insurance even if I am fired / unemployed by choice and not disabled ? Seems like cheap insurance if a disability km were to hit and I was unable to go "back" to work after huge medical bills.
I bought my DI from a company outside of my school district and what the teachers' association offered, because that policy could travel with me wherever I went to work. It provided great peace of mind when I relocated to another state, took time off from teaching, then taught in a couple settings before settling into 12 years at my final school. Because it was a private policy it would have always paid in addition to SSDI and/or a DI provided by the local school district.(The agent said that, as long as there was never a lapse in premium payment, I would be insured.)

Fortunately, I never needed to use it; but I didn't mind paying those premiums (for about 19 years) because of the reasons all of you have listed here.

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Old 03-04-2015, 03:18 PM   #15
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Couldn't you still apply for Social Security Disability? Seems to make no sense to have your own policy in addition.
The criteria for qualifying for SSDI are very stringent: one must be certified by a dr. as being unable to work in any capacity. The private policy's criterion was this: a dr. would have to certify that I could no longer work in my current (then) profession as a high school teacher. So, I could collect on that policy, if necessary, and then go out and get some kind of work that I could do.
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