Think Again - How would you make ends meet if you suddenly couldn't work?

by Ilana Polyak | Illustration by Ryan Snook

It was the middle of the night and a mare on Deborah Hoger’s ranch was having a difficult labor. The veterinarian couldn’t be there for the delivery. Instead, he coached Hoger by telephone. All she had to do was pull gently and ease the mare’s foal into the world.

But there was a problem. Hoger, 34, was recovering from a recent hysterectomy and wasn’t supposed to lift anything, much less a foal. Sensing there was no other choice, she did it anyway and almost immediately felt a tear in her own insides. A devastating infection soon followed.

It took nine months to heal completely—nine months Hoger, a licensed real estate agent at the time, was unable to work. "In real estate, if you can’t work, you don’t make an income," she points out. Unprepared for this financial setback and the sole provider for her young daughter, she was forced to sell her ranch at a loss, which took more than a year, and move in with her parents.

Now, 22 years later, Hoger, a Thrivent Financial for Lutherans representative in Spokane Valley, Washington, uses her own story to motivate others. Knowing all too well the difference disability income insurance could have made during that critical time of her life, she hasn’t been without it since.

Income Is Key
"Your ability to earn an income is your most valuable asset," Hoger says. But many people don’t protect it. In fact, just 28 percent of those working have long-term disability income insurance, according to estimates by the Bureau of Labor statistics.

"We value things more than we value ourselves," says Lynn Stuhr, a Thrivent Financial representative in Pewaukee, Wisconsin. "Many of us wouldn’t think of going without home or car insurance, yet our most valuable asset—our incomes—we leave uninsured. And the replacement of our incomes can be $1 million or more."

So why do people skip disability income insurance? Some think it’s a needless expense, says Stuhr. Others think their own financial reserves or modest employer protection will cover them. And more often than not, people believe they won’t become disabled. These can be dangerous miscalculations. According to the National Association of Insurance Commissioners, one in three working Americans will become disabled for 90 days or more before the age of 65.

The Ins and Outs
Disability, from either illness or accident, can rob you of your income, but it won’t alter many of your daily living expenses. You still need to pay your bills and feed your family. Plus, you may be paying for additional care.

While you may have some disability income insurance through your employer, do you really know how much money you’ll receive if you use it? And do you know the tax implications? For example, your employer’s contract may replace up to 60 percent of your pay, up to a certain amount. However, if your employer pays the premium, the income you receive is taxable. When you factor in taxes, your take-home pay may be only 45 percent to 50 percent of what you’re used to earning.

Some employers also offer group contracts, which allow you to purchase individual disability income insurance at a group rate (generally less than individual rates). Watch out though, notes Stuhr. You may have restrictions on how much of your income you can insure and the length of time the contract will pay. Plus, you won’t be able to take it with you if you leave or lose your job. The advantage to a group contract is this: if you have a health issue that makes it difficult for you to get an individual contract, you can protect some of your income.

But the best alternative for most people is an individual disability income insurance contract that can supplement employer coverage or protect you if you’re not otherwise insured. And because you pay the premium, the benefits are tax-free.

Invest in Yourself
The annual cost of an individual contract varies, depending on several factors like the amount of income you want to cover, how long you can wait before your benefits kick in, and whether you want to be able to buy additional coverage later on (see "Questions to Ask").

It can take as little as 1 percent to 3 percent of your annual salary to buy disability income insurance. As a lump sum, that may seem like a lot (someone making $50,000 a year could pay as much as $1,500 annually for coverage), but you can pay for it monthly and the outlay will seem like a bargain if you fall ill or are injured.

"Look at it this way: if you pay $150 a month for five years, you will probably get your premium back within the first three months of being out of work," says Brian Daniels, a Thrivent Financial representative in Idaho Falls, Idaho. His clients, Ron and Kathy White of Rigby, Idaho, are relieved they made the investment. Ron’s job as a forklift operator at a farming equipment company depended on his good health. So when Ron was in his 40s, the Whites decided to get disability income insurance to cover part of his salary. "Because of the type of job I had, it made sense. You can get a back injury, broken legs or anything when you work around heavy equipment," says Ron, now 63.

But when Ron collapsed at work in 2004, it wasn’t because of an on-the-job injury—it was non-Hodgkin lymphoma. Weak from the illness and endless doctor visits, Ron began missing work. When his chemotherapy began, he left work completely.

The Whites’ disability income insurance contract, designed to pay about a third of Ron’s salary for two years, helped cover extra expenses until he was eligible for Social Security benefits at age 62. Meanwhile Kathy, a manager at a collection agency, continued to work. "In the Whites’ case, disability income insurance saved their bacon," Daniels says. "They only had two years of coverage, but it was enough so they could figure things out. Without it, they probably would have lost everything."

In Ron White’s words, "It let us keep our house and be able to eat."
New York City-based freelance writer Ilana Polyak writes about personal finance and investing.

For more information, contact your Thrivent Financial representative.

What Are You Worth?
More than you think. When studying a disability income insurance contract, make sure the amount of coverage you purchase factors in not only your current and future income but also all the odd jobs you’ll need to cover while you’re ill or injured: think grocery shopping, child care, cleaning, yard work, etc.

Read More

Questions to Ask