Read The 9 Steps to Financial Freedom Online
Authors: Suze Orman
The 9 Steps to Financial Freedom (18 page)
Suppose you do heavy labor and are laid up with a back injury, or you are a psychotherapist and lose your speech because of a stroke. When this kind of disaster strikes, an LTD policy can really save the day. You may think that you do not need one because you are protected by workers’ compensation. Remember that workers’ compensation covers you only if you are injured while performing your job. LTD insurance will pay for you whether you hurt yourself on the job or at home or on vacation.
In many ways this insurance is every bit as complicated in terms of finding a good policy as long-term-care insurance is. To find a good carrier, you might want to ask many of the same questions I listed under LTC insurance.
In looking for a good policy, here are some elements that you need to understand and some further questions to ask:
What percentage of income will the policy pay?
Most policies pay a percentage of what you are earning; typically the maximum is 60 to 66 percent of your current earnings. The
higher the percentage, the more expensive it usually is. Many companies have a cap on how much they will pay monthly, if bought through your employer. For large employers, it is usually $5,000 a month.
How long is my elimination or waiting period?
Just as with LTC policies, this is how long you will have to wait till the company starts to pay. A normal waiting period is three to six months.
Till what age will they pay?
Most policies pay only until you are sixty-five years of age.
Do you cover me if I am disabled because of illness as well as in an accident?
The answer should be: “Yes.”
What if I can only work part-time because of my disability?
You want a policy that will pay according to how much you can and cannot work. If you can work part-time, the company should pay you a portion of your disability payments. The term for this is
residual benefits
.
Is the policy guaranteed renewable?
Here you want to hear absolutely “Yes”—you do not want to have to qualify each and every year for benefits.
Is it “owner’s occ” or “any occ”?
Do you feel as though I just started talking a different language? This question is very important. What it asks is under what circumstances the company will pay you. Will it pay you only if you cannot perform any job whatsoever, or will it pay if you cannot perform
your
job? Suppose you’re a musician and you lose some of your hearing. You might be able to function and sell pencils on the street corner, so you are not necessarily “disabled,” but you can’t do your job. If you have an “any occ” disability policy, it will pay you only if you cannot perform any occupation, so you would not be able to collect benefits for your loss of hearing. If your policy were “owner’s occ,” it would pay as long as you, the policy owner, cannot perform your own occupation.
LTD insurance is not cheap; the average policy is about $600 a year. The most cost-effective way to buy it (usually) is through your employer if they offer it. In many states it is mandatory that your employer offer it to you in your benefits package, so depending on where you live, you may already be covered. Make sure you ask your benefits person to find out if you are covered and, if so, how much coverage you have and how it works. If you do not feel that it is enough, or you do not have any, you might consider looking into purchasing some on your own.
The main companies that specialize in disability insurance are:
A
FLAC
UNUM P
ROVIDENT
L
IFE
I
NSURANCE
N
ORTHWESTERN
M
UTUAL
L
IFE
A/B TAX-PLANNING TRUSTS/NON—U.S. CITIZENS TRUST/SPECIAL NEEDS TRUST
Sherry was worried. Her husband’s father was dying, and she feared that when he died it would be the financial death of the whole family as well.
Tim, my husband, and his brother, Daniel, work for their dad at this machine shop he owns. They’ve worked there forever. I keep the books and see all the papers, so I know pretty much what’s going on. The shop makes pretty good money, but it’s just all these machines mainly, and a lot of the money goes back into the business to keep the machines going. Some of them are getting pretty old, but the business is still worth over a million bucks.
The way it’s set up is that Tim’s dad owns the whole business. He says one day it’s all going to be Tim’s and Daniel’s, so not to worry. He’s pretty old and not well at all, and Tim’s mother is probably not going to live that much longer, either. I don’t mean they’re both going to die tomorrow, nor do we want them to, but they are both in their mid-eighties, and death, I keep telling Tim, is a fact of life. Pop owns the business, and when he dies, if Mom is still living, she inherits it. He has a will saying so. Then
her
will leaves everything to Tim and Daniel. The shop is a family business, so what happens next is that Tim’s and Daniel’s wills both leave the business to each other. We’re all really close, but it still doesn’t feel right to me, or to Daniel’s wife, Christine, either. What will happen to me when Tim dies? What happens to Christine when Daniel dies? When Christine and I ask them, they’re just like Pop—they both just say, “Don’t worry, I am taking care of it. End of discussion.” But I
am
worried.
Sherry was right to be concerned. How many times have we said or heard the words: “Don’t worry, I’ll take care of it”? These words don’t handle the problem; at times, in fact, as was the case here, they create the problem. Sure, we all intend to get around to taking care of things, but there’s a big difference between thinking we will and actually doing it. Being responsible to those you love is
knowing
that you have taken care of
everything, rather than just
thinking
you have. Being responsible also means being open to talking about issues such as death, sitting down with everyone involved to discuss their concerns, fears, misguided assumptions, and questions. Seldom do the words “I’ll take care of it” take care of anything.
When Sherry came to see me, I told her her family could be in big trouble. Even though Pop and Mom had a will, in truth they had not taken care of the very problems they sought to avoid.
To begin with, their total assets were worth more than the maximum amount you can leave to anyone other than your spouse without having to pay estate taxes to Uncle Sam. Those limits are:
| FOR DEATHS OCCURRING IN | | AMOUNT OF EXEMPTION |
| 2011-2012 | | $5,129,000 |
| 2013 OR LATER | | TO BE SET BY CONGRESS |