When I graduated college, I aspired for financial independence and creating financial success. I was proactive; I had an internship during college which led to a successful career upon graduation, maximized contributions to my 401(k), and systematically put money aside in my bank account. I quickly saved enough for a down payment and purchased my first condo when I was 25. It was October 17, 2008. I will never forget that day. I felt proud, I felt excited, and I felt like I had my whole life ahead of me.
Fast forward to November 12, 2008. The day that my income stopped. Having worked at the same company for five years, I walked in that morning to find out that there had been a “RIF: Reduction In Force,” which is corporate speak for “I lost my job.”
It was really bad timing. I was terrified. I was stressed. I was worried that in a time of increased foreclosures, I would be next. I no longer felt proud. I no longer felt excited. My confidence was shaken. I was grateful to still have my health, but I lost countless nights of sleep questioning how I would pay my bills- especially my new mortgage.
Consider why you work. The common answers to this question are: current consumption, future consumption (retirement), and pride that you get from your career. Our income is our greatest asset, but have you considered what would happen if one day you could no longer go to work? If your income stopped? How would you feel?
That December 2008, someone in my own family was diagnosed with cancer. In an instant, my naïve sense of invincibility that “It will never happen to me” was replaced with the sobering reality that “It could happen to me.”
While we cannot control the economy, or if a company is going to downsize, what we can do is understand our options for protecting our income against another less considered threat: a sickness or accident. We hear often in the news about the unemployment rate, but what we often don’t hear is the statistic that three in ten workers entering the workforce today will become disabled before retiring.1 What is happening to these people?
Consider your personal experiences. Do you know any family, friends, or co-workers who have been diagnosed with a life-altering illness or been in a significant accident? Many of us know someone who has been diagnosed with cancer, had cardiovascular disorders, or neurological issues to name a few. A diagnosis like that never comes at the right time, and the average disability lasts 31.2 months2, with some of these individuals recovering quickly but some never recover at all. How does this impact their ability to earn an income?
Many Americans have Group Long Term Disability coverage through their employer as part of their benefits package. However, your Group Long Term Disability (LTD) plan may not provide the coverage you need if you become too sick or injured to work. That’s because Group LTD typically covers 50-60% of base earnings (excluding bonuses, commissions, and pension contributions) and if your benefits are employer paid then the benefit that you receive is taxable. Furthermore, Group LTD can be modified or canceled by your employer at any time, and often you cannot take the coverage with you if you leave, or lose, that job. This is important to note because if there were to be a detrimental change to your health during that time, then it may prevent you from getting Individual Disability Income Protection.
Individual Disability Income (IDI) insurance can help replace your income, and allow you to maintain your standard of living. It can allow you to focus on how you are going to get well and recover, rather than on how you are going to pay your bills. Unlike group LTD, IDI coverage stays with you even if you change jobs, and the benefits you receive are tax free when you pay with after-tax dollars.
You worked hard in college, and have built your career. You may have saved in your retirement account, or bought a home, but your income is your greatest asset. How have you protected it? After losing my job, I found my passion as a Financial Advisor where I have made it my mission to help others address this risk. Unlike other insurance products, like auto or homeowners insurance which can be bought off of the shelf, Individual Disability Income insurance requires underwriting you personally based upon your health, income, age, and occupation. You never know when your health is going to change, so I encourage you to learn your options for protecting your income, and securing your future while you are young and healthy.
1 SSA, Fact Sheet 1/31/2009
2 Gen Re Disability Fact Book, 2010
Megan K. McAvoy
Financial Advisor, Park Avenue Securities
Registered Representative, a Financial Advisor of Park Avenue Securities LLC (PAS) and a Financial Representative of The Guardian Life Insurance Company of America, New York, NY, supervised from 140 Kendrick Street, C-1 East, Needham, MA 02494. Securities products/services and advisory services offered through PAS, a registered broker-dealer and investment advisor, 781-449-4402. PAS is an indirect wholly owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency Inc., an affiliate of The Bulfinch Group, Inc. The Bulfinch Group is not licensed to sell insurance. Neither Guardian nor its subsidiaries issue Long Term Care Insurance.
PAS is a member FINRA, SIPC. GEAR 2012-10062