A middle-aged, self-employed, technology consultant contacted me via LinkedIn this past February about getting together to review his finances to be more tax efficient and maximize his retirement readiness. Like most engineer types, he was organized and had all of his financial information to me in a few days.
Upon review of his financial records, I saw that he had adequate cash reserves to cover 6 months of living expenses, a reasonable amount of life insurance and modest amount of retirement savings in his retirement account. I noticed a large 15 year mortgage and that his wife was not presently employed outside the home. His wife was finishing professional school, two children were at college, one was in high school and the youngest was in junior high. His three year old, sole practitioner, consultancy business had increased revenues each year and this year was tracking out to be even better.
I was feeling pretty good about his position so far until I came to the section that asked about Disability Insurance – also known as income replacement coverage. He had none. I felt my own chest tighten and a wave of panic washed over me. The family’s financial welfare was entirely based on my client’s continued ability to get up and get to work. There was no safety net except for the 6 months of living expenses which would only cover the mortgage, utilities and food. The enormous college and professional school bills could not be paid from this modest sum. This family’s lifestyle would dramatically change should my client suffer a debilitating injury, stroke, heart attack or any kind of illness that put him out of business for an extended period of time.
After a 20 minute phone consultation, I was e-mailing a medical history form so that he could apply for Disability Insurance. Simply stated, Disability coverage is an insurance plan that pays a fixed amount of monthly income when one is sick or hurt and can’t do their job. Plans can be purchased that provide benefits for 2 years to age 65 after a waiting period which is like a deductible – normally 90 days. The cost is a function of the monthly benefit, duration, age and any extra riders that provide an assortment of extra value benefits. Most good policies run from 2-3% of annual income. This kind of coverage puts a floor under your income and preserves your lifestyle so the bills get paid while you focus on getting better. Social Security rejects most applicants unless they are expected to die within 12 months.
Take some time to review your insurance plans and make sure that you can pay all of your bills when you are at your worst so your family’s lifestyle isn’t disrupted.
To learn more about Jeffrey Lewis, view his Paladin Registry profile.
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