Expecting the Unexpected: Why Disability Insurance is Essential for the Ultra-Wealthy
For the ultra-wealthy, financial security isn't just about growing wealth—it's about protecting it. One often-overlooked aspect of risk management is disability insurance, a vital tool to ensure you maintain a stream of income even if an unforeseen illness or injury prevents you from working. Disability insurance provides a safety net that preserves your financial stability and lifestyle, allowing you to focus on recovery without financial stress.
Understanding Disability Insurance
Disability insurance comes in two main forms: short-term and long-term. Short-term disability insurance typically covers a portion of your salary for a few months, while long-term disability insurance can provide income for several years or even until retirement. The goal is to replace a significant portion of your income, usually between 60% to 80%, to help you maintain your standard of living.
Consider this: if you earn $500,000 annually and suddenly become unable to work due to an injury or illness, the financial impact can be substantial. Without disability insurance, you would have to rely on savings or liquidate investments, potentially jeopardizing your long-term financial goals. Disability insurance provides a steady income, allowing you to focus on recovery without financial stress.
The more working years you have left the more important disability insurance is to your long-term financial plan. For younger folks, the value of your future income may often be your biggest asset. But most people don’t think about it that way. In the same way you would always have homeowner’s insurance on your home as one of your largest assets, you also want to have insurance on your future income.
Additionally, many people only think about disabilities as physical accidents that can disable you like car accidents. But nowadays, often it can be other ailments like a cancer diagnosis that requires ongoing treatment, Lyme’s disease or some debilitating sickness that keeps you from being able to work.
Case Study: The Value of Disability Insurance
Take the example of Sarah, a high-earning executive at a major corporation. Sarah enjoys a comfortable lifestyle, supported by her substantial salary. One day, she goes in for a routine mammogram and finds out she has stage 4 breast cancer. She’s going to likely have to undergo surgery and ongoing chemo treatments for many months. She won’t be able to complete her normal job duties, even though they can mostly be done in front of the computer due to her treatment schedule and energy levels. Thankfully, Sarah had a comprehensive disability insurance policy in place. The policy covered 70% of her income, allowing her to continue paying her mortgage, medical bills, and other expenses without substantially dipping into her savings or investment accounts.
Without disability insurance, Sarah would have faced a dire financial situation, potentially forcing her to sell assets or significantly alter her lifestyle. This underscores the importance of disability insurance as a safeguard against unexpected health issues.
Key Features to Consider
When selecting a disability insurance policy, there are several critical features to consider:
Definition of Disability: Policies can vary significantly in how they define disability. Look for a policy that includes an "own-occupation" definition, which means you are considered disabled if you cannot perform the duties of your specific job, rather than any job.
Benefit Period: This is the length of time the policy will pay benefits. Opt for a policy with a benefit period that extends to retirement age to ensure long-term protection.
Elimination Period: This is the waiting period before benefits begin. A shorter elimination period means you receive benefits sooner but may result in higher premiums.
Residual or Partial Disability Coverage: This feature provides benefits if you can still work but at a reduced capacity, compensating for lost income due to a partial disability.
Cost-of-Living Adjustments (COLA): COLA increases your benefits over time to keep pace with inflation, ensuring that your coverage remains adequate as living costs rise.
Strategic Planning with Disability Insurance
For high income earners, disability insurance should be part of a broader financial strategy. We recommend working with a financial advisor such as us to integrate disability insurance into your overall risk management plan. Consider factors such as your income, lifestyle, existing assets, and long-term financial goals. A well-structured policy can provide peace of mind, knowing that your financial future is secure even in the face of unexpected health challenges.
Fortis Financial Group's Expertise
At Fortis Financial Group, we recognize the unique needs of high-net-worth individuals. We offer personalized disability insurance solutions tailored to your specific circumstances. Our team of experts works with top insurance providers to ensure you receive comprehensive coverage that aligns with your financial goals.
Conclusion
Disability insurance is a critical component of a robust risk management strategy. It can help protect what might be your biggest asset, your future income. It provides a financial safety net, ensuring that your income and lifestyle are protected if you become unable to work due to illness or injury. By carefully selecting a policy that meets your needs and integrating it into your overall financial plan, you can safeguard your wealth and maintain peace of mind.
Disability insurance is more than a safety net—it's a crucial part of ensuring your continued financial success and stability. At Fortis Financial Group, we're here to help you navigate this essential aspect of risk management, providing expert advice and tailored solutions to secure your future. Contact us today to learn how we can help you achieve unparalleled financial security.
