A Fate Worse Than Death
Can you imagine if you could buy insurance to cover the risk of a restaurant going out of business? What a concept! According to an often-cited University of Ohio Study, 60% of restaurants do not make it past their first year, and 80% fail within five years. So who would insure that kind of risk, and what would the premiums be if one were even able to buy that policy?
A restaurateur I know well recently shut his doors. After a successful opening and a few very good years, his revenue became eroded by competition, location, and mostly the fickle nature of the patrons. Instead of cutting his losses and immediately shutting his doors, he fought on, hurt but not dead, and continued to throw good money after bad. If he’d suffered a flood or fire, for example, destroying the business entirely, he would have been compensated under his “death” insurance. Unfortunately, though, given the massive risk, there is no restaurant insurance for a “disability.”
When engaging in the financial planning process, the impact of death and the need for life insurance to protect assets and lifestyle is a primary focus of the process, and is always analyzed and determined. However, the same cannot be said for a disability. We have a visceral need to protect our family and/or business in case we die, but somehow the thought of a long-term disability, and the impact thereof, doesn’t seem to fill us with the same level of concern.
The reality cannot be more different from our psychology. The risk of a long-term disability is significantly higher than a premature death, with a staggering impact. Individuals currently earning high incomes are oftentimes most affected by these consequences, as they are blindsided by Disability Insurance limits.
While actual statistics on a disability lasting more than 90 days can be hazy and differ widely depending on demographics, the reality is very clear. By all measures, one is more likely to suffer a long-term disability than a premature death prior to age 65. Yet many of us seem to think that either it “won’t happen to us,” or if it does, we wouldn’t really be prohibited from continuing to earn a living.
For a family, the financial impact of a disability can be a “fate worse than death.” In the event of death, expenses to manage the household will usually decrease, given the elimination of fixed and variable costs of the deceased. However, with a disability, expenses almost always increase the need to equip the home for managing the disabled’s needs, and other non-insured medical and transportation expenses.
From a business perspective, the consequences of an owner or key-person disability can snowball into far-reaching devastation. With an impact on management, operations and revenue, the future of the entire business can be put in jeopardy.
For the very-high-income earner, be they a professional athlete, entertainer, production executive, medical or legal professional or business-owner, traditional insurers simply cannot meet the income replacement ratios of these earners, since they exceed the traditional maximum disability income limits. So what are these individuals to do? High-Limit Disability Insurance protects current income and future potential earnings in the event of disability. It can also protect lucrative endorsement contracts, which could be cancelled in the event of a disability.
August 11, 2016
