WRITTEN BY MARC S. SCHLIEFER, CFP®RICP® WEALTH ADVISOR AND CEO
A not too pleasant to talk about subject is disability and long-term care illness. It is something that you hope never happens to you or your family, but in real life things can
and do happen that can derail plans for a normal life. Here are some things to think about to protect you and your family from the financial burdens that an illness or injury can cause.
One day you’re healthy, working and enjoying life and then in a split second, you’re dealt a blow. An accident or illness takes some or all your abilities away to do the day- to-day things that we all take for granted. The topic of this discussion is the planning that you need to consider to keep your present lifestyle as much as possible and also to avoid becoming a burden to your loved ones and friends.
The first thing to do as soon as you start working is to get as much disability income insurance as possible. Most employers provide 60% of your salary as a disability benefit. Unfortunately, most of the company benefits are fully paid for by the employer and because of that, that particular benefit becomes fully taxable to you if you become disabled and collect on that benefit. This becomes an issue because even though you are getting 60% of your income, the tax may be 30% or more. Meaning, you will be living
on less than half of what you were making while you were working. And, you most likely will have more medical and other expenses.
There are a few things that you should do while working and still in good health. The first thing to do is to check with your employer and see if they will tax you on the premium of the disability benefit that they are paying for. If you are taxed on that premium, then the benefit becomes tax free and your 60% will be close to your after-tax income while you were working. Another thing that you should do is to look at buying additional disability insurance either from your employers group plan or by purchasing an individual disability plan through an insurance broker or financial planner that is knowledgeable about disability insurance.
Most group plans cap their benefit at $10,000 to $15,000 per month. If your income is greater than $200,000 you should definitely consider purchasing as much disability as you can to protect your earning power and cover the extra expenses that a long-term health condition will cause.
Having done financial planning for many years, I have seen the impact on people that have been fortunate enough
to have had the maximum amount of disability insurance. In the case of a high-powered attorney, it eased the recovery by not having to worry about finances. It made a huge difference in the quality of life and the ability to heal without the stress of financial pressure.
The other item that is important for people that are older and are either not working or are near the end of their career is long term care planning. If you are on Medicare, there is very limited coverage for long term care. And there is almost no coverage for home health care. Some care is available for the first 100 days following a hospitalization, but after that there is no further coverage and all expenses for care would be your responsibility. If and as long as you have assets, you will be required to pay for your care. The solution is to purchase a long-term care policy. The cost
for the coverage is not inexpensive. But it may be worth considering purchasing a base line of coverage in case something happens to you that requires long term health services. If you do purchase a policy, you want to get one that has home health care provisions.
Please feel free to email me and I can help you discuss these issues, and we can determine what will be the best option in your case.
Equity Planning Inc. 7910 Woodmont Ave., Suite 900, Bethesda, MD 20814
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This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
