Disability Insurance For Hard-To-Insure Boomers

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Every high-income baby boomer who wants to maintain a comfortable standard of living probably needs some private disability insurance, advisors say. And boomers who are helping to support children or loved ones need even more income protection.

One problem is that many boomers who do not get adequate disability coverage through their employers might have a hard time qualifying to buy individual coverage.

Figures from the federal government show that about 5% of boomers with college degrees already suffer from some kind of disability serious enough to affect their jobs, and about half of those boomers have severe work disabilities.

Larry Schneider, owner of the Disability Insurance Resource Center, Albuquerque, N.M., a disability brokerage, says about 12% of the boomers whose applications cross his desk face serious underwriting challenges.

Some boomers understand they will have trouble getting disability insurance because they have health problems, such as diabetes or obesity, or they have not owned their companies or held their jobs long enough to build up solid income histories. Other applicants run into problems because they earn less than $20,000 per year, work out of their homes, are federal employees or travel overseas more than 2 weeks per year, Schneider says.

If you go to Iraq even 15 minutes, forget it, Schneider says.

Carriers are uncomfortable with the risks insureds face when they travel extensively, and few carriers look forward to investigating claims involving incidents that occur overseas, he adds.

Although carriers could exclude coverage for disabling conditions resulting from overseas travel, most simply deny policies to applicants who spend much time outside the United States, he says.

Meanwhile, many carriers are not sure whether low-income applicants, applicants with access to rich, disability-triggered federal retirement benefits or applicants who work out of their homes have much incentive to go back to work after they suffer from disabling illnesses or injuries, Schneider says.

Some small business owners have effective incomes that are much higher than the incomes they report to the Internal Revenue Service because of the wonders of modern accounting. In those cases, insurers go by the tax returns, he says.

For the most part, he adds, the best strategy for coping with disability underwriting challenges is to avoid ever having to worry about them.

The bottom line is that people should get disability insurance at the earliest possible moment, Schneider says.

Hard work, creativity and relationships with knowledgeable disability brokers are the best answers for advisors working with boomers who already face underwriting challenges.

Even when a case looks hopeless, there might be a remedy somewhere, Schneider says.

Finding coverage for healthy boomers who have home offices, travel overseas, earn between $14,000 and $20,000 per year, or work for the federal government may be simply a matter of talking to a good broker who knows which companies are comfortable with those types of risks, Schneider says.

Other boomers might be able to get more coverage than they realize through employer-sponsored plans or association plans.

For some boomers, accidental disability policies or customized policies from special risk carriers might be helpful, experts say.

But some boomers will have to depend on their own savings.

David Bohannon, a financial planner at Consultants Corner Inc., Louisville, Ky., says he recommends that most clients try to put 3 months of take-home pay in an emergency fund.

For the boomer who cannot qualify to buy adequate disability coverage, I would say to put away a years worth of pay, at minimum, Bohannon says.

An advisor must consider the boomers situation when coming up with an emergency fund savings strategy, but the boomer probably should keep the emergency funds in short-term bond funds, laddered certificates of deposit, or other products that are protected against short-term investment market fluctuations, Bohannon says.


Reproduced from National Underwriter Edition, August 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.