Disability Insurance

Insurance helps guard against large losses that could undermine financial security for women. There are many types of insurance, but it’s best to focus on insurance that protects you in places where losses could hurt the most.

Disability insurance is one of those areas. Think of it as income replacement insurance. Personal finance advice for women should include lowering risks. Here’s a story of how disability insurance helped one woman and her family.

Disability Insurance Saved Her Family

By Karen J. Lee, CFP®

Many years ago I met an incredible woman named Connie. She was self-employed as a free-lance journalist, married, with one small child. The thing I loved about Connie was her sophistication about money, even though she was in her late 20’s. She had done her planning well on her own, but the responsibility of having a child made her reach for an outside opinion from a financial planning professional.

Connie’s early planning
She and her husband had a very modest income, and lived in a small house in town that was easy to afford. To me, the most amazing thing about Connie’s financial planning was that she had already bought disability insurance (for income replacement) before she even met me.

I am usually the first person who brings this up to my clients, and I can’t tell you how many insist that it will never happen to them, and don’t take my recommendation to purchase this coverage. Connie knew that being self-employed, she had to take care of herself and provide the benefits that most people get from their employers.

Upon reviewing her financial plan, the only thing lacking was life insurance. Connie and her husband bought a combination of term and permanent coverage to cover their need, and went on their happy way.

Disaster strikes
Not two years later, Connie called me with some horrible news. Following a routine checkup, she had been diagnosed with soft tissue sarcoma in her pelvic bone. When she first told me of the diagnosis, she immediately stated how happy she was that she bought all that life insurance, since she might never be able to buy life insurance again. I was amazed that her mind even considered that thought at this time.

Connie’s treatment would start immediately with surgery. The surgery was enormously invasive, and would carve out portions of her pelvic bone and surrounding tissues, including her buttocks. This was followed by five weeks of radiation, and then a second surgery.

Good news, and some bad news
Fortunately, the surgeons felt they had gotten all of the malignancy, but Connie was left with a lot of physical pain. In addition, the surgery made her unable to sit down comfortably, which is necessary for the job of journalism.

Needless to say, Connie couldn’t work. She applied for disability insurance through the Social Security Administration as well as filing a claim for the personal coverage she had been so wise to buy at a young age. Between those two sources of income, and her husband’s income, they have been able to stay in their home and even continue to save for the future.

This story has some happy endings.

1) Connie had been told that the surgeries might make her unable to have more children, but two years later she gave birth to a healthy baby!

2) The original term life insurance I sold to Connie—annual renewable term—had become quite expensive. But 10 years after being diagnosed cancer-free, we were able to underwrite new life insurance, at a standard issue rate, and replace the old expensive coverage.

Should she turn down $250,000?
Two times now, the insurance company paying the disability claims has offered her a lump sum “pay off.” On first glance it seemed hard to turn down. The company was offering around $250,000. But true to her nature, Connie called me immediately to ask for my input, instead of just grabbing the quarter-million.

After some simple math, we calculated that the lump sum was equivalent to about eight years of monthly payments. The first time this offer was made, Connie was 39 years old. She knew she would never work as a journalist again, making her eligible for the monthly disability income check until age 65.

My advice, therefore, was not to take the lump-sum offer. It seemed to benefit the insurance company more than her.

Lessons Learned
Research insurance and buy it when you’re young, even if you don’t have a lot of money. You never know when you will need it. This is especially true if you have dependent children.

Consider your options rationally, not emotionally. In this case, $250,000 looked like a great deal of money, but after Connie crunched the numbers, it wasn’t so much after all.

Most people think, “Disability will never happen to me.” But it happens to someone. How do you know it won’t be you?

It’s just money, so why does it cause so many problems? One cause–people don’t always make the right choices at the right time.

Editor’s Note—This article is condensed and revised from the upcoming book, It’s Just Money—So Why Does It Cause So Many Problems? Thanks to Karen for sharing this story from her new book!

Karen J. Lee, CFP® CLU, ChFC, MSFS, AEP, is a financial planner in Atlanta, GA. Since beginning work in the financial services industry in 1987, Karen has worked with hundreds of families, individuals and small businesses, helping them design a plan to achieve their financial dreams. Karen is the author of the upcoming book, It’s Just Money – So Why Does It Cause So Many Problems? For more information, visit www.karenleeandassociates.com

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