When, if ever, would you reduce disability insur. coverage?

[disneysteve]

I am a firm believer in having disability insurance. I took out my first policy while still a resident, I believe. Through the years, I've added to my coverage as my income rose. I now have 4 policies, each with different monthly benefits which add up to replace my current income. My question is this: Is there a point at which, based on my age and total personal assets, it might make sense to trim back the coverage? Since I have 4 policies, I could cancel one without affecting the others. Cutting back would free up money that could be added to investment accounts.

I'm 43 years old and anticipate working until age 62, so I've still got a long way ahead of me. This probably isn't something that makes sense now. I was just thinking about it and wondering if or when it would make sense. Any thoughts?

[MarianneJ]

Interesting topic, DisneySteve.

As I just started a new career and am the "breadwinner" of the family I am just now waiting for my DI quotes to come back. It was a very tricky decision to make and I had to do a lot of reading and researching before I felt at least *slightly* comfortable choosing the different options. Anyway, I digress.

You may never come to a point where you have absolutely no need for DI, but you may be at a point even now where you may not need 100% of your wages covered. It sounds like you are paying the premiums with after-tax dollars, and if that is the case the proceeds (if ever utilized) would be tax free. Therefore you should only need to cover your NET pay, not GROSS. Also, you should think about if you were to become disabled and not work would/could your monthly expenses go down? For instance, would you possibly spend less on gas, eating out, childcare, put less in savings/retirement accounts, etc...most likely things would change a bit if you were home all day instead of working. Of course, there could be expenses that you do not have now such as rehabilitation. Would these be covered under your policy or are these expenses you would have to pay separately out of pocket?

I think as you get closer to retirement age (or closer to the maximum age of your policies) you could possibly cut back. It is a difficult decision as DI is similar to Life Insurance - you buy it in the hopes that you never need it. It is kind of a gamble cutting back near the end of its term, but if you have enough saved to cover you for the duration if you were to lose your income it makes sense.

Just some things I thought of. Hope they are helpful.

[Broken Arrow]

Originally Posted by disneysteve

I'm 43 years old and anticipate working until age 62, so I've still got a long way ahead of me.

I'm just curious, but is there a particular reason why you've set your target age at 62?

[disneysteve]

Originally Posted by MarianneJ

you may not need 100% of your wages covered. It sounds like you are paying the premiums with after-tax dollars, and if that is the case the proceeds (if ever utilized) would be tax free. Therefore you should only need to cover your NET pay, not GROSS.

I wasn't clear on that. Yes, I am paying after-tax and it is my net that I have insured, not my gross, so that's already taken care of.

[disneysteve]

Originally Posted by Broken Arrow

I'm just curious, but is there a particular reason why you've set your target age at 62?

Because I don't think I can afford to retire at 55 .

I enjoy my work, but I enjoy lots of other things, too. I don't want to work until I die. I don't want to work until I'm physically unable to, or unable to do much else when I stop. I want to get out while I'm still in good shape and able to enjoy myself, travel and do various other things that I don't get to do while working full-time. If the stock market is good to me in the next decade or so, I could get out before 62. Or, if things don't go so well, I may work longer, but for planning and projection purposes, you've got to set a goal and mine is 62.

[Scanner]

Just from what I know of you, I would consider reducing it.

Disability insurance is one of those insurances, like health insurance, fraught with trouble (mainly fraud). Unlike life insurance, where you get 1000's of dollars of coverage for pennies (not just a commercial - it is true, I find disability insurance not to be cost effective.

I am personally bare, mainly because peers within my work group frauded the disability policies so much (from what the ins. co's said) that you can't find an affordable policy. Sometimes I can't even find companies who will write for it.

So, in effect, you buy into a sick system.

I think as physicians become more disillusioned with practice and plan on leaving, they will "activate" their golden parachutes of their disability policies.

I'd start exiting now.

[disneysteve]

Originally Posted by Scanner

I am personally bare, mainly because peers within my work group frauded the disability policies so much (from what the ins. co's said) that you can't find an affordable policy. Sometimes I can't even find companies who will write for it.

So, in effect, you buy into a sick system.

I think as physicians become more disillusioned with practice and plan on leaving, they will "activate" their golden parachutes of their disability policies.

There is definitely a lot of truth to this. Fortunately, though, I bought my policy in the early 1990s before a lot of that stuff started happening. At that point, the insurance companies were still writing good policies for physicians with broad coverage and own-occupation clauses.

Since then, policies have gotten much more restrictive. As you mention, as doctors found medical practice more and more of a pain, they started taking advantage of their disability policies to get out early. Problems that they normally would have worked through - a bad back, arthritic hip, mild heart disease, etc. - now qualified for benefits so they retired on disability. The insurance companies caught on and either stopped writing new policies or drastically reduced the scope of the coverage they offered. I'm still covered by the "old-school" policy so I think I'm safe if I ever have a legitimate claim.

If I were just starting out today, I'm not sure what I would do.

[cptacek]

Originally Posted by disneysteve

Because I don't think I can afford to retire at 55 .

This jumped out at me. If you don't think you can retire at 55 with your current income, and will need to keep working until you are 62 so you can, then don't you need to make sure that you keep your current income until then?

[disneysteve]

Originally Posted by cptacek

This jumped out at me. If you don't think you can retire at 55 with your current income, and will need to keep working until you are 62 so you can, then don't you need to make sure that you keep your current income until then?

That's a very good point. What I was wondering, though, is if there comes a point where it isn't cost effective to pay for the coverage. Kind of like when you drop collision coverage on an old car. Does it still make sense to be paying for coverage when I'm 50 or 55 or some certain age?

[boog]

As the new insurance guy on the boards, I would say it is time to reduce your benefits when you can afford to be disabled without the benefit.

For example, when you first get started, you may need $10k/month in benefits to cover school loans, mortgage, put food on the table, take care of family. However, as you get older, even though your income may increase, your financial responsibilities might decrease. Your mortgage may be paid off, your school loans may be paid off, the kids may be out and on their own. If you were to be disabled you might sell your home and buy something smaller and less expensive.

So, then, instead of needing $10k a month, you may just need $5k to live comfortably.

Also, over time, hopefully more and more of your income could come from investements. If you can suppliment your income with investments, that would be another reason to decrease your disability.

[filifefc]

I would say the right time to reduce is when you have enough to retire. As long as you need to work, you should have disability insurance.