My wife is a Speech Language Pathologist. SLPs are dedicated professionals who provide an invaluable service to their clients, most of whom are children. After learning about the services these professionals provide and seeing how they can enrich the lives of their clients, I decided to focus my financial planning practice on helping SLPs and their families achieve their financial goals.
One area of financial planning that is often overlooked by SLPs and many others is disability insurance. We will discuss some of the issues surrounding this important coverage and why it is a critical part of any financial plan.
You might also enjoy learning more about Disability Insurance by listening to the podcast episode I recorded on the topic:
Why disability insurance is important
Disability insurance is often called “lifestyle insurance.” If you become disabled, this coverage provides an ongoing stream of income that can help protect your lifestyle. This is crucial not only for you, but also for your family and those who depend upon you.
In my experience, most people are attuned to the need for life insurance. Death at any age is tragic, it can be financially devastating for those with a young family. Having the proper coverage at an affordable price is important. The death benefit can provide the financial support to your loved ones to replace some or all of your income.
While proper life insurance coverage is important, disability insurance may be even more critical. The odds of your becoming disabled during your working career are far greater than the odds you will die. Disability coverage kicks in when it is determined that you have a disability as defined by the policy.
One way to look at disability coverage is terms of homeowner’s or renter’s insurance. In the case of homeowner’s insurance, you are insuring perhaps the biggest asset you own from losses due to a fire or other catastrophes.
I would argue that ensuring your earning power is equally important, losing this stream of income would be financially devastating for most of us. For example, when you finish your CF, you might earn $60,000.
Assuming you work a 30 year career and receive a 4% salary increase annually, this equates to $3.4 million in earnings over a 30-year working career. That’s a pretty significant amount of money for most people.
Top misconceptions regarding disability insurance
Disability insurance is a product that carries a number of misconceptions. Here are some that I commonly see.
I’m young and healthy. That may be the case today, but we don’t know what tomorrow or the next year will bring. In fact, more than 25% of today’s 20-year-olds can expect to be out of work for at least a year during their career because of a disabling condition.[i]
As with many types of insurance coverage, the most common time that people want disability insurance is when they become disabled, it’s too late at that point.
This is similar to the decision as to whether or not to purchase flood insurance, especially for those of us who live in the south or other flood prone areas. Your region may go years without any major flooding, but in that one year where major floods happen you will be glad that you had this insurance, especially if your home is one of those hit with significant damage.
This insurance can be a financial life saver for you and your family.
If you are struck by a disability, even one that is relatively short in duration, the loss of income if you can’t work can be financially devastating. Disability insurance can go a long way towards mitigating the financial impact of a disability.
I have disability insurance through ASHA, isn’t that enough? Disability coverage through ASHA or any similar type of organization can be a good start, but it’s important to read the fine print on the policy. Group policies the ones offered by ASHA often have broad definitions of disability, meaning they define being unable to work as being unable to do any sort of work.
This might include working at a retail store or a fast food restaurant.
These policies might have shorter time periods for benefit payouts and or specify that you are only covered for as long as you are an ASHA member.
You might consider a private disability policy with a narrower definition of disability, one that is portable if you change employers and one that has a longer benefit period.
I won’t get injured. Statistics show that 90% of disability claims come from non-injury situations.[ii] Among the most common disability claims are those arising from conditions like muscle and back disorders, cancer and mental health issues.
Issues related to pregnancies can also result in disability claims, these issues of course only impact women.
The different types of disability insurance
There are a number of different types of disability insurance. These include:
Long-term disability insurance pays a benefit if you become disabled and cannot work for a period of time or permanently. The benefit period might be as little as two years or until retirement age.
The benefit amount is often a percentage of your income, 60% is typical. The definition of disability will also vary by policy.
Short-term disability insurance is just what it sounds like. Benefits are often paid for a maximum of a year, though the benefit period will vary with the policy.
In group plans both short-term and long-term disability policies may be offered. Some employers may include short-term disability at no cost.
Mortgage disability insurance is typically a policy offered by a mortgage lender that will kick in if your become disabled and cannot make your mortgage payments. The payments will typically go directly to the lender.
These policies may be tied into a package that includes a life insurance policy as well. Each case is different, but generally these specific, narrowly focused types of policies are not a great deal and you may be better served with a regular disability policy.
It may be a separate policy or a rider (an add-on) to your mortgage.
Supplemental disability insurance is an additional policy that you might purchase to cover any gaps between what you would need to maintain your lifestyle should you become totally disabled and the amount of coverage offered by a group disability policy through an organization like ASHA or your employer. These policies are purchased via a private insurer and are portable if you switch employers or are otherwise not covered by your group policy.
Self-insurance is just what it sounds like. You would be responsible for covering your own living expenses from your personal assets in the event that you become disabled.
This approach involves no insurance premiums but will require you to have sufficient savings to cover your expenses for what is essentially an unknown period of time. This can prove difficult from the vast majority of us.
Why SLPs truly need disability insurance
As a Speech Language Pathologist, you’ve gone through rigorous schooling, training and externship to earn your CCCs. You may have even received a doctorate or become Board Certified in a specialty which enables you to become a highly credentialed expert in your field.
Needless to say, you’ve invested hundreds of thousands of dollars and thousands of hours to reach the pinnacle of your profession.
As a highly specialized professional, you can protect the investment you’ve made in yourself and your career by insuring your income against unforeseeable events.
The ability to earn a paycheck fuels your lifestyle. This is the money you need to pay your bills and the mortgage.
This money is also used to save and invest for your various financial goals including retirement, saving for your children’s education and a host of others.
Without disability insurance you will quickly deplete your personal assets should you become disabled and find that your income stream form working is dried up.
What to look for in disability insurance policies and providers
The best disability insurance policy is one that fits your coverage needs and is affordable to you. In shopping coverage and insurance providers here are a few things to keep in mind.
As far as the best policy for you, it’s important to look at the policy’s key features including:
The definition of disability. Ideally this will be the inability to perform your own occupation and this definition will encompass your duties as an SLP.
The two most common definitions of disability companies are:
- True-Own occupation: You are considered disabled if you can no longer perform the occupation you had prior to become disabled.
- Any occupation: You are considered disabled if you cannot perform ANY job at all.
Let’s say you are a highly credentialed medical SLP who is board certified in swallowing. You slip in your backyard while chasing your kids and break your wrist.
This leaves you with permanent nerve damage and the inability to properly work an endoscope and provide proper hands on patient-care for clients.
In the best case scenario, you would have owned a disability insurance policy that identified your true occupation and detailed the specific duties of your job. You would be entitled to disability income while also working another job like the back office of your clinic or becoming a professor.
In an alternative scenario, you receive your coverage from a group disability policy from your employer or association which contains a broad definition of disability. This generally means that you will not be considered disabled if you can do any sort of work.
For example, if you can work at McDonald’s behind the counter, you might be required to take a job of this sort in order to earn any sort of benefit. The insurer would pay the difference between what you are earning at your new job and the amount of your total benefit.
The elimination period is the period of time that elapses between the onset of your disability and when your benefit will commence. This might be 30 days, 60 days or longer. You will need to cover any lost income during the elimination period from your own savings.
The benefit period is the time over which benefits will be paid. This might be a limited period like a maximum of five years, or it could extend until retirement age, which will be defined by the insurance company.
The amount you will be paid also known as the indemnity amount. This is often a percentage of your income, 60% is common.
All of these factors should be considered in selecting a policy. The more favorable the terms, generally the higher the premium cost will be.
One other factor to consider is the insurance company offering the policy. It’s important to be sure the company is financially sound and will be able to provide the benefits on an uninterrupted basis should they be needed.
Additional policy riders and features to consider
Beyond the basics of the policy, there may be some riders (add-ons) or other features that you might want to consider.
Non-cancelable provision states that the insurer cannot raise your premiums as long as you keep paying them.
Guaranteed renewable means that the insurance company cannot cancel or change the terms of your policy as long as you pay your premium.
Partial disability will cover you and pay a benefit if you are partially disabled. This means that you can’t fully perform the duties of your job, but you can work part of the time or in a limited capacity. It’s important to understand exactly how partial and total disability are defined by the policy.
Cost of living adjustments will trigger on a periodic basis to keep your benefit payment in line with increases in inflation. Policies that offer this feature may charge extra for it, the cost of living benefit may also have a cap. There is often an index or benchmark that is used to measure inflation.
Mental-nervous riders will cover you if you’ve been diagnosed with depression, anxiety, ADHD and similar debilitating conditions. Some policies may cover these types of disabilities, others may require this type of rider.
Do private practitioners need additional coverage beyond a basic disability policy?
SLPs who own their own practice are also business owners and this carries its own set of responsibilities. These obligations may require additional specific coverage.
Business overhead disability coverage pays a benefit to the business if the business owner becomes disabled and can’t work. This money can be used to pay the rent and utilities on the business office space, to cover the cost of any business debt, salaries of any employees and other recurring expenses.
This allows the business to stay open in the event the business owner is able to return to work or may assist in the sale of the business if that is the route you choose.
Disability buyout insurance if there is a partner in the business. This type of policy can be used to fund a buy-sell arrangement or similar buyout arrangement if you become disabled. This can provide liquidity for you and your family and can provide your partner clean ownership of the business.
Business reducing term is a type of disability insurance that pays a benefit if the policy holder becomes disabled that is tied to the term of a business obligation like a loan. This can be helpful in the event that your business has outstanding debt. In fact some lenders may require this type of insurance as a condition of making the loan.
Do I need disability insurance if I’m nearing retirement?
The answer to this question will depend upon the specifics of your unique situation, but in general the answer is yes. The reason I say this is that losing your income within a few years of retirement can be financially devastating and can ruin your plans for a comfortable retirement.
If you need to take five years-worth of income out of your savings and you have to stop contributing to your retirement plan for the last five years of your planned working life, this becomes a substantial hit to your retirement nest egg that can throw your retirement plans off track. The income from a disability policy during the critical years leading up to retirement can be the difference between achieving your retirement dreams and a retirement lifestyle that is far below your expectations.
How much does disability insurance cost?
You can generally expect to pay between 1%-3% of the income that you are trying to protect. Coverage though a group plan like those offered by associations like ASHA, or by employers like school districts, is generally less expensive as the coverage is not as robust in terms of the definition of disability and other features.
Disability insurance purchased privately will generally cost more as the terms of these policies are more favorable. Terms such as a narrower definition of disability and others potentially provide you with a larger benefit but paying out these benefits is more costly to the insurance company.
How SLPs can obtain disability insurance
SLPs should purchase disability insurance through an insurance broker who takes the time to understand your specialized needs. When looking at your medical history, specialty specific job duties and financial situation, there is a lot of information to evaluate and compare amongst the many insurance companies.
If you do not have experience looking at the intricacies of contractual language, a reputable insurance broker will have experience looking at the strongest insurance companies that offer the strongest definitions of true-own occupation for disability insurance.
The Bottom Line
What if your most recent paycheck was your last one? What if this was the case and you were 40 years old with a family to support and a mortgage to pay?
Sadly this scenario is not unusual, and this is precisely why SLPs need disability insurance.
If this scenario, or even a shorter interruption of your income for a couple of years, were to happen to you how would your family weather this storm? Would you be able to maintain your lifestyle?
Disability insurance should be a core component for your financial planning efforts.
If you’d like to learn more, or if you want help in reviewing your current coverage please feel free to contact me. I am a financial planner and am a licensed insurance agent with a deep understanding of disability insurance. I’d love to help you build the financial security you deserve.
Please click the start here button below to schedule time to talk about your specific situation.
References
[i] Social Security Administration. Disability and Death Probability Tables for Insured Workers Born in 1997. Table A
[ii] Council for Disability Awareness, 2014 Long-Term Disability Claim Review
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