The Overlooked Insurance

Is this the insurance Boomers and pre-Boomers overlook the most? Quite possibly. Last week, we talked about the idea of disability policies in your personal finance framework. This week, we're going to take a look at some of the add-ons that you might consider when buying a policy.

Shoppers know what a value is. Except when it comes to buying cars and insurance. Then, we often lose sight of what value is by adding stuff to the purchase which can increase the cost. Want the spoiler on the car? It’ll cost more. The upgraded sound system? More. Leather, sunroof, alloy wheels? More, more and more money out of pocket. And most shoppers know they can add these extra items on after the purchase. But few seldom leave the show room with the stripped down version of the car, the basic model, with the intentions of adding on the features we think we need.

Our conversation about disability insurance also has the same sort of stripped down version – the basic coverage that replaces some, not all of your income should you not be able to work. Now, we're going to take a look at the seriously upgraded policy that most of us find not only enticing, but worthwhile. These add-ons are referred to in insurance jargon as riders. Are they worth it or can we do it alone with less?
Let’s discuss what you can add-on to these basic policies and what they may cost you for this peace of mind.

The first of these add-ons is often the Cost of Living Adjustment or COLA. We know how our money can erode over time with inflation. So it can be suggested that if you have agreed to a set benefit, that benefit, the longer it is in place will be worth less with each passing year. The COLA rider is intended to protect you from this risk and usually kicks in after first full year the policy is play or even after the first year of your disability. They offer an enticing increase, sometimes as high as 6% every year that you are disabled and receiving benefits.  Sounds good but could cost you about 40% more than the basic coverage.

Most people who use a disability policy do so because they can’t work. But when an agent offers you what is called a residual disability rider, they are suggesting that even though you are hurt, you might be able to return to work in a limited fashion and because of that, this policy makes up some, not all of the difference in your pay.  It typically provides a partial benefit when your earnings are reduced by at least 15-25% as a result of an injury or illness. But it will cost about 20-25% more if your policy doesn’t have it already built-in.

Think you might need more insurance at some point down the road? While most of us either fall into one of two categories: over insured or under insured, this rider called a future increase offers a sort of Goldilocks add-on. It suggests that if at some point in the future, you might like to increase your monthly benefit, because the benefit you have “just isn’t quite right”, you can do so without re-applying and submitting to additional medical examinations.

All you need do is pay for the rider (sometimes 10% more in premiums) and should you decide to exercise it, simply prove that you make more now by providing the right financial documentation. To do so without the rider means you will need to get another medical exam.



The catastrophic disability rider sometimes called the 2 of 6 rider (meaning you are unable because of your disability to perform 2 of the 6 basic morning duties: getting out of bed, going to the bathroom, showering, getting breakfast, brushing teeth, getting dressed) allows you to purchase an additional benefit amount that will be paid if you are catastrophically disabled. Catastrophically disabled means you have a complete and irrecoverable loss of sight in both eyes, hearing in both ears, speech; or the use of both feet, both hands, or one foot and one hand. Alzheimer's Disease or other irrecoverable forms of dementia or senility are also considered. Keep in mind that this is not a Long Term Care policy. Some policies include this; others don’t. That’s the best way to compare the true cost of this benefit against a separate LTC policy.

The automatic increase benefit is available with most carriers at no additional cost. The AIB rider will increase your monthly benefit amount by 5% of the original benefit at each policy anniversary, for the first 5 anniversaries. Your premium will be increased based on attained age at each anniversary. If you have this rider and chose not to accept the annual increase, you can do so by submitting a written request to the insurer.

The own-occupation rider allows certain occupation classes to upgrade the definition of disability to a “true own-occupation” definition. If this rider is added to your contract it will replace the standard definition of disability offered, to one that states “You will be considered totally disabled if due to injury or sickness you are unable to perform the material and substantial duties of your regular occupation”. Good luck finding this but if you do, it can be worth the cost, which is about 10% more in premiums. If you are in a relatively hazardous job, this sort of rider can also retrain you after a period to do another job.

By having a refund of premium or as it is sometimes referred to as the good health benefit rider on your policy, the insurance company will refund a percentage of the premium paid over a defined period of time that you remain healthy and not on disability claim, until age 65. This costs a lot and if you do have a claim, it will be all for naught.

This one is quite possibly the best rider available in part because it actually lowers your premium in many cases as opposed to increasing it. Called the Social Security rider It is actually a bet with the insurer that suggest that, if you should be come disabled, and Social Security coverage kicks in, the insurer is off the hook for a percentage of the benefit owed. I actually have this and should I become so disabled that Social Security kicks in, the insurer is only obligated to pay 20% or what they may have owed me. But as Social Security suggested, the next step in life if you qualify for Social Security is death.

Like all insurance policies, shop around, be sure that your employer doesn’t already cover you in some way and be careful you don’t buy coverage that might be better suited as a stand alone policy.

And one last note: the more you have saved in an emergency account, the less you have to worry about some of these riders. While all insurance is designed to never be used, an emergency account can make it easier to forego exercising the policy or adding on expensive riders you may never need.

Happy Mother's Day: Do You Know Where Your Retirement Plan Is?

We all have mothers in common. And on this day, besides remembering her with flowers, candy or breakfast in bed, there is no better time to begin planning for her future. I mention in my book "Retirement Planning for the Utterly Confused" that women often play a very diverse role throughout their working career. The roles they play, the numerous hats they don, are often the reason Mom doesn't have the financial strength when her working years are done.

She often leaves work to have children (not always and if your are a stay-at-home Dad, you would be wise to pay attention as well) and this is first instance of retirement interruptus. Her efforts at saving for the future, at a time when every financial advice giver agrees, are the best years for saving for that far off distant future, are put on hold. That one move can have long-term damaging effects.

She may hit other bumps in the road as well. Later in life, statistics show that it is often the woman who leaves work to take care of a parent in their golden years. This creates a cycle of disaster as the lack of preparation of the parent leads to a continuance of the problem that must be avoided. Adding another work stoppage seems to make the previous break for children even worse.

There is also the issue of being single. They may wait longer to get married, but no one problem for s secure financial future looms larger than the possibility they they will face their retirement years without a spouse. While this independence might seem attractive at first glance, your Mom may be under severe financial stress, shortening her lifespan in the process.

Sons and Daughters need to unite. Today (and the next day and the next) are the best times to take all of this into account.

Sons should not only be looking at their own mothers and mothers-in-law but their wives and daughters as well. In many instances, these women default to your experience with money. In many instances this is a grave mistake. Men, as it has been shown, are more emotional about money, willing to take bigger risks, and are often not focused on the big picture.

Sons, you need to begin the conversation. Is your wife saving as much as you are? Is she adequately insured for potential disability or even long-term care? Is she assuming enough risk to make her retirement investment grow?

Is your mother's finances in the best place to ensure it will not outlast her time with you? Are you financially prepared to deal with a health problem (has she named an executor, made a will, or otherwise let her intentions be known) or a loss of property? Have you made a plan to determine all of the possible scenarios that might play out, as difficult as something like that might be to do?

Is your wife (and daughters, if they are at least twelve years old) involved in how your financial house is structured? Are you guilty of financial infidelity, an act of risky behavior that you hide from the family's finances and fail to admit? Have you saved enough for a rainy day?

These are all tough problems to deal with. But ignoring only puts off until tomorrow what you should have planned for today.

Today is the day that Sons need to help your mother, your wife and your daughters have a better future. Daughters: Today is the day you need to get involved, open the conversation and make a plan for your future.

Oh, and Happy Mother's Day!

Retirement Planning and a Social Security Disability Claim

Life may come at you fast, but when you file a claim against a government agency such as Social Security, the idea that something will happen sooner rather than later is only wishful thinking.

There are many of us who feel as though health of Social Security as a retirement plan should take center stage in every conversation. But there is an increasing chance that you will be exposed to the other side of what the agency does before you reach retirement age. The chances that you will have to make a disability claim rise each year and the process does not come with any sort of speedy solution.



The patience it takes to get a judgment from the agency on your case has little to do with the quality of the lawyer you hire. In many instances, the time between the initial claim and your actual hearing can span almost three years, sometimes longer. But the process does require you to make some specific assumptions not only about whom you hire to represent you but how they are paid.

First, the myth of “dire need” no longer dictates who gets heard by the agency or how soon. Determining who needs more faster no longer is considered. No attorney worth her or his salt will make the suggestion that their services will get you a quicker hearing.

Second: the speed of those cases has little to do with the SSA itself. The sheer number of cases being brought to court has doubled over the last decade, making the process of reviewing each individual claim much more difficult. But ultimately, the claim must be brought to a judge. Depending on where you live, the process can take much longer. While it is true that nationwide, the number of judges hearing disability claims has dropped 10%, your state might have a larger backlog of cases than your neighboring state. While that is no consolation, it is also no reason to blame your attorney.



Third: attorneys do not get paid until the case is settled. According to Atlanta based attorney Jonathan Ginsberg “The first method is called a fee agreement process and the second is called the fee petition process. The fee agreement process is simple - if you and your lawyer enter into a contingency contract based on past due benefits that calls for payment of 25% or less of past due benefits, with a cap of $5,300, Social Security will automatically withhold and pay the lawyer 25% of past due benefits up to $5,300 without any need for the lawyer to file a detailed time and billing statement.

“On the other hand, if the fee contract does not provide for a contingency or if there are more than one lawyer claiming a fee, then any lawyer claiming a fee will have to file a detailed fee petition, setting out time records, expenses claimed and other billable time.”

Mr. Ginsberg also suggests sticking with your attorney through the whole process. If for some reason you are considering firing your original attorney, the SSA regardless of the previous attorney’s position in the case will satisfy the fees due at settlement.

He also warns that you should make your choice wisely and be patient. “Law school professors and our malpractice carriers advise us to avoid clients who have fired prior counsel because those clients are the ones who are most likely to be unhappy with a lawyer's work, regardless of the outcome,” Mr. Ginsberg writes.

“Therefore, unless your lawyer is clearly incompetent, ill or dead,” it would be best to stick with your present counsel.