Disability Insurance Basics

Shutterstock_416729059It’s fairly common to have at least a small understanding of life insurance, but it’s not often we hear about disability insurance. Every now and again, you’ll hear that a friend is “out on disability,” but what does that really mean and what types of disability insurance are out there?

There are two very different types of coverage – short term disability and long term disability. Depending on your policy and your state’s laws, short term coverage generally covers a period under 1-2 years – although many policies cover a much shorter timeframe, say 3 months. Short term coverage is only available through an employer. Many plans allow you to carry over a limited amount of unused vacations days (up to a maximum) to add to your “short term disability bank.” If your employer doesn’t offer this coverage (or if you’re self-employed), you may want to consider having a 3-6 month savings set aside in the event that you suffer a disability.

Long term disability (LTD) is meant for illnesses or injuries that prevent you from working for at least several months. Coverage may be available from an employer and/or from an outside source, such as an association to which you belong. This is where things get tricky.

Employers like to tout that benefits like LTD are paid on a pre-tax basis. While that is attractive when you are paying your premiums, those benefits have to be taxed sometime – and that sometime is when they are paying out. What that means is that if your policy replaces 60% of your income, that 60% payout is going to be taxed – meaning less money to pay bills. Another caution with employer plans is that they are not portable. If you leave the company, the policy will cease to exist.

If you purchase an external plan, the inverse is true. Your benefit amount will not be taxed and you keep the policy so long as you remain eligible and continue to pay your premiums – regardless of switching employers. You may also find better rates if you’re purchasing through an association group plan.

Long term disability policies differ in pricing based on a “waiting period” (sometimes called an “elimination period”), or the period you have to wait from the time you incur your disability until the time the policy starts paying. 30, 60 and 90 day waiting periods are very common. Prices decrease for longer waiting periods. This gap is where your emergency fund or STD policy can be critical to staying afloat financially.

It’s important to note that disability coverage isn’t health insurance. The money is not earmarked to only pay medical bills. It should be thought of as income replacement that allows you pay for your normal bills until you get back on your feet again.

A feature you will want to look for is called “own occupation.” In other words, the policy considers you to be disabled (with some other stipulations, such as the inability to do certain activities of daily living) when you cannot do your exact job, not just any job.

You will not find a policy that will replace 100% of your income and insurance companies require you to disclose other policies to ensure the addition of their policy does not equal a high percentage of your income. Policies will generally pay around 60% of your income – with some plans going as high as 80%.

LTD insurance typically requires full underwriting, which means you will fill out an application and undergo some medical testing. On occasion, group plans may offer a limited benefit amount to which you can secure coverage with only answering a few short questions (known as simplified underwriting). These offers cannot be made frequently, so you may want to consider them when you receive one.

Disability insurance can be confusing, but it’s coverage that most of us should consider. After all, how many of us could afford not being able to work while incurring medical bills? Feel free to message us if we can answer any additional questions about disability insurance.

Winging It: How to Approach a Case Outside Your AOP

Shutterstock_338830598Lawyers are frequently approached by friends, family and clients to give advice regarding a legal matter that is outside their area of practice (AOP). While it can be difficult to say no to such requests, there is one valid reason to do just that: you could be increasing your risk of a malpractice claim.

According to the American Bar Association (ABA), failing to know or apply the law is the number one most common legal malpractice claim made against an attorney. While you may be vaguely knowledgeable about an unfamiliar area of law, you likely are not aware of what else may be lurking there, such as a shorter notice requirement or an obscure statute of limitations. Missing those important details can lead to an ethics complaint, even against a well-meaning attorney who was just trying to help someone out.

So how can you minimize the risk of a malpractice claim stemming from a foray into an unfamiliar practice area?

  • Just say no. Don’t take on a case outside your customary area of practice – no exceptions.
  • Refer all cases in a recognized specialty to a recognized specialist.
  • If a current client refuses to allow you to make a referral to a recognized specialist, withdraw representation.
  • If you are unable to withdraw representation, hire a recognized specialist out of your own pocket.
  • If you can’t afford to hire a specialist, immediately immerse yourself in that area of practice and prepare to provide competent representation. That’s the standard you will be held to by the ABA.

 Don’t Fail to Act with Competence

Failing to act with competence is not only a basis for a legal malpractice claim, but is also an ethical violation. Rule 1.1 of the Model Rules of Professional Conduct states: A lawyer shall not fail to provide competent representation to a client. "Competent representation" is defined as having the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Time and effort are required to become competent in a particular AOP, and cutting corners to do someone a favor is usually not worth the risk.

For more information about the risks of practicing outside your practice area, contact USI Affinity today.

Understanding Insurance Underwriting

Shutterstock_223155742When being presented with an insurance offer, you’re likely to encounter one of three scenarios:

  1. The offer doesn’t require an application and states that you cannot be turned down for coverage.
  2. An offer with a series of around 3-5 short questions, typically requiring a “yes” or “no” answer.
  3. An offer that includes a full application.

The first scenario is what’s called “guarantee issue.” If the product is individually underwritten, you may pay higher rates due to the increased risk to the insurance company. In a group plan (such as through an association), the rates are normally unchanged. In a plan such as dental or vision, it’s very common for the plan to be guarantee issue at all times. For life or disability insurance, these offers are usually only offered at very infrequent intervals – maybe only once every other year. These offers can be to add onto your existing coverage or to start a new policy. It can be a quick and simple way to add to your insurance portfolio with minimal effort.

The second scenario, with several “yes” or “no” questions is “simplified issue.” These questions are often referred to in the insurance world as “knockout questions” because the insurance company may consider a “yes” answer to any of the questions as disqualification for coverage. This isn’t always the case though. Certain “yes” answers may be okay or it may trigger additional underwriting activities.

Lastly, when you receive a full application, this is called “fully underwritten.” In some cases, the application information will be enough for the insurance company to approve or deny your coverage. More often than not though, they will have a paramed appointment set up with you where the company will come to the location of your choice and collect blood and/or urine samples. For very large policies, you may also have to go through financial underwriting to prove that the policy isn’t unreasonable in comparison to your assets. For instance, if you make $30,000 annually, the company may not approve a $2 million policy. It’s important to note that the fully underwritten process can take a bit of time to complete; thirty to ninety days is not completely unheard of.

We hope that this blog helps you to understand the different types of insurance offers you may receive. Of course, if you have additional questions, please feel free to comment, send a message or call us.