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Disability Insurance for High-Income Earners

Your income may be your biggest financial asset - here's how to protect it.

By Erik Miller

Most of us work for the love of what we do, but also for the income we make. The truth is that during our top earning years, few of us either want or can afford a life of total leisure.

Erik Miller

Erik Miller

So, it’s always interesting when I ask people what their biggest asset is. Typically, they’ll mention their investment portfolio or other large asset. But they completely forget the “Golden Goose:” themselves and their ability to earn an income. An important question to ask yourself is, “If you were unable to work for an extended period of time, due to an illness or accident, where would the money come from to maintain you and your family’s lifestyle, fund your retirement or grow your investment portfolio?”

If you don’t have an answer, or haven’t really thought about it, it could end up being a big financial misstep. The answer to the above question is actually quite simple: disability insurance. It’s there to replace a portion of your income if you are sick or injured and unable to work and earn a living.

A Key for High-Income Earners

That said, disability insurance can be a complicated concept, especially if you are a high-income earner. That’s due to the nuances of the product, what type of policy you have and where you get that policy.

Let me explain with a quick anecdote. I changed positions recently, and in the whirl of initial HR paperwork came the choices—or at least information—that we all get concerning our benefits, including insurance products, like life and disability insurance. Now, I’ve been in this industry for over 20 years, and even I was at the point of glossing over what my new disability insurance benefits were. But I didn’t, and you shouldn’t either. With the “Great Resignation,” many of us have shifted priorities and positions, making now a perfect time to focus on this very important benefit.

With high income earners, I can say with some degree of confidence that what is typically offered through the workplace is not enough for you. That’s because disability insurance policies typically cover somewhere between 50% to 70% of your income. But, and this is a big “but” for high-income earners, there is a cap on the amount of income that is covered through that policy.

Let’s say you have a policy that covers 60% of your income, but it maxes out at $180,000 in annual payout. Could you live on whatever the maximum cap is on your work policy? Do you even know what that is? Plus, your disability insurance benefit through work may be limited to a period of time, such as three or five years. What happens if your disability is something like a progressive disease that ends your working career?

This is what happened to Scott Rider, a financial services professional who had a thriving career and a young family. His career ended when Parkinson’s Disease made it impossible for him to continue, (watch his story here) however thanks to his investments early on in his career, disability insurance was there to close the gap for the rest of his career and enable Scott and his family to maintain their lifestyle.

For high-income earners, a good solution to explore is buying an individual disability insurance policy that you own, in addition to what your company offers. This means that no matter what changes you have in your career, this policy is there for you each step of the way to ensure there are no gaps in coverage. It also serves as a supplement and support to any coverage you do get through work.

How to Get It

Because the idea of income replacement is so tied with your other wealth strategies, disability insurance is a topic to explore with your trusted financial professional. After decades in this business, I know that disability insurance is the most overlooked of the major insurance coverages—and I mean that from both sides of the table. You as a client often don’t know about how important it is, and advisors often overlook it as well, due to perceived complexities. So, this is an area I encourage you to be proactive in asking about and getting the coverage you need. If your advisor isn’t well versed in disability insurance, they can partner with an insurance professional who is.

Here are some points that I would understand and then talk over with your financial professional when you go to discuss disability insurance:

Find out what you have at work first. If you glossed over your benefits when you started and don’t know what type of disability insurance coverage you have, now is the time to rectify that. Make an appointment with your HR representative to find out the details of your coverage. (And while you’re at it, check your life insurance coverage, too. You very likely need an individual life insurance policy as well.)

Don’t forget about other income. If your salary is just the beginning, and you rely on bonuses and other benefits to round out your compensation package, this is important information to explore with your advisor so you can close any income replacement gap with an individual policy.

Understand own occupation vs. any occupation. You’ve made your name in the business you’re in. It’s what you know, it’s what you do, in some cases it’s who you are. So having an individual disability insurance policy that covers your “own” occupation is key. It means if you can’t perform your covered occupation, your benefits would kick in. Any occupation would mean you would be covered only if you couldn’t work in any occupation. The difference is huge.

You can have more than one policy. Just like you might own several life insurance policies to cover different needs, the same applies for disability insurance. The benefits from both policies work in conjunction.

Business owners can go a step farther. If your business is your livelihood, you’ll want to explore with your business partners how a buy-sell agreement funded with disability insurance can keep the company going if one of you is unable to work do to an accident or injury. You can watch attorney Peter Zatir’s story of how throat cancer ended his litigation career, but proper planning with disability insurance made sure he was bought out of his portion of the business. He lost his career, but not his way of life.

Do It Now

Perhaps the most important takeaway with disability insurance is to not delay in putting this coverage in place. Getting coverage isn’t something to do some time in the future, it’s something to do now because none of us knows when the unexpected might happen. Valerie King is a prime example. As a young mom of three, she had dreamed of nothing other than being a physician. However, when she was in her 30s, ulcerative colitis put an end to her career as a doctor. It’s her disability insurance that allowed this single mom to raise her three daughters and put them through school (watch her story here). Imagine where she would have been without disability insurance. And the key question for you is, where would you and your family be financially without disability insurance if an illness or accident prevented you from working?

About the author: Erik Miller

Erik Miller is senior vice president of Insurance & Benefits with AdvisorNet Insurance, based in Minneapolis, and is the chair of the insurance education nonprofit Life Happens. AdvisorNet Insurance offers a full suite of insurance services including life, health, disability and long-term care insurance in addition to annuities, employee benefits and Medicare. The company partners with you as both an extension of your back and front office through its exclusive Concierge Sales program.