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Disability Insurance – Your Essential Back-Up Support System

In practically any part of the world, when someone is disabled as the result of an injury or an accident, they find themselves incapable of any work. As a result of this, they are left with no source of income, financially handicapped and their quality of life reduces.

Is there any way to work around this and prepare for unplanned disability? Well, you may not be able to predict if and when disaster strikes, but you can protect your financial stability in case it does, by simply investing in disability insurance.

What is Disability Insurance?

Disability insurance provides a solution to the problems that a sudden injury or illness may leave in its wake. To ensure that your financial independence is not reduced in case you’re disabled and unable to work, it provides you with an alternative income source that can help you meet expenses and maintain your quality of life.

Depending on what you were earning before the disability, you could receive anywhere from 45-60% of your income with disability insurance. The payouts and benefits are normally tax-free, which reduces the worry of financial liabilities even further. Since disabilities and their circumstances differ, the various plans and coverage differ as well.

When Should You Consider Buying Disability Insurance?

This insurance is not necessarily for individuals with a perpetual injury, but should be considered by all. Anyone with a whole family reliant on them should take up disability insurance, so that in case of any mishap they can continue to provide for the family through this program.

Disability insurance provides protection for health-related expenses, and serves as a replacement income source if you can no longer earn. The insurance policy ensures a return of sixty percent of what was lost as a result of an unexpected mishap.

How to Shop for Disability Insurance

Understanding the circumstances of your own situation and the terms of this insurance is essential. With the assistance of an agent, this insurance can help in providing you and your family with the same kind of security and comfort they enjoyed when you were earning. Keep a few things in mind before buying disability insurance:

The first and most important thing is to buy disability insurance when you are still healthy, active and earning. Insurance policies usually demand a lot of paper work and investment, and if you consider it after you are no longer earning, then the process will become quite daunting and often even impossible to achieve.

The installments you receive once the policy kicks in are directly dependent on how far ahead of time you applied for it. Several individuals make a wise move by applying for this in their youth and begin utilizing it thirty to forty years later. The amount of each installment around that time is often thrice of what was initially offered.

The maximization of the installment payments also depends on what you are currently earning. If your income has been varying then the policy will consider a net average of your income over the course of the previous three to four years. This helps you get a fair idea of what you will get once the insurance starts.

When you know all the requirements, you can shop around for the best disability insurance package. The final choice you make should not be dependent on the price of the policy but on the features and aids it will offer once you start to utilize it.

Projected Increased Numbers in 2015

If you have been considering disability insurance, then 2015 may be the best time to do it. The reason for this is the anticipated increase of 1.7% in the living expenditure provided to individuals. Social security is also going to be increased to allow people more financial benefits. So if you have been considering buying the policy, now is the time to do it!

Statistical Analysis on Disability Insurance

It has statistically been proven that one out of four individuals in their 20s buy the policy before they hit retirement. Twelve percent of the entire American population has applied for disability insurance, which makes for roughly 38 million applicants. More than eight million have already qualified for the security of disability insurance.

Is Disability Insurance Worth Buying?

Many people will question whether this insurance policy is even worth buying or not. Here is their answer:

  • When Disability Insurance is a Good IdeaInvesting in disability insurance is a wise choice if you alone earn income and/or have others dependent on you. Being disabled for even six months to a year can leave you in a financial mess, eating into their savings with no way to replenish them till they return to work. On the other hand, a long-term disability often causes people to take on extra debts or even file for bankruptcy!

    On the off chance that you are disabled in your early 30s, you will be left without a source of income and no way to pay your bills. In fact, the chance is not all that unlikely, since there is a greater possibility of disability that death during your working years. Despite being unable to work, your monthly income will not be stopped if you have a good disability insurance plan in place.

  • When Disability Insurance Not Such a Good Idea 

    Since disability insurance is an added expense in the form of premium payments, you should gauge your requirements carefully and decide whether you do need it at all. In case you and your spouse are both working, it may be possible to meet expenses even if one income source is depleted. In cases like this, covering one partner may be enough.As you plan for life insurance or any other coverage, consider whether it may offer you enough benefits in the form of periodic payments so that you can supplement your savings. If you’re not financially capable of paying extra premiums for additional policies, taking on a disability insurance plan could lead you into debt or bankruptcy in the future.

Variations in Disability Insurance Policies

There are various types of disability insurance and you should consider them all before you decide to buy one. Let’s take a look at some of the options available:

  1. Business Overhead Expense Disability InsuranceIf the owner of a business suffers a disabling injury, then through this policy program the business will be helped in continuing to maintain and pay rent, mortgages, property tax, utilities, leasing costs, laundry/maintenance, premiums for business insurance, salaries and benefits for employees, accounting,
    billing and collection service fees, etc.
  2. Individual Disability InsuranceUnlike the previous program, this policy is for self-employed individuals independent of any company-offered insurance. Premiums and benefits vary further depending on the applicants and their particular requirements, like their occupation, the state they work in, how quickly payouts will begin in case of a disability and how the disability is defined for the policy. It can be quite expensive to buy, but offers a wide range of benefits.
  3. Employer-Supplied Disability InsuranceAs the name suggests, in case of a disability suffered by an employee, an employer can offer disability insurance for the benefit of their workers. Since disability often occurs due to accidents at the workplace, many employers are required to offer an insurance plan and benefits to their employees. If your employer offers disability insurance and you are disabled while working for them, your income will be protected automatically.
  4. High-Limit Disability InsuranceMost disability insurance plans feature a cap of around $20,000-25,000 on the maximum monthly payments you can receive, so many people opt to supplement existing coverage with high-limit policies from other carriers. A high limit disability insurance plan insures and promises the spare of 65% of your independent income, regardless of how much it was before, and can offer $2,000-$100,000 additional monthly funds.
  5. Key-Person Disability InsuranceWhen a significant member of a certain company is disabled, this policy protects the company from financial loss and allows the business to continue earning. With a key-person disability plan in place, the company will receive cash flow and benefits that act as the investment required to maintain profits. It may also offer extra benefits that allow the company to hire a temporary replacement for the significant person who is disabled.
  6. Workers’ CompensationThis policy is far more than a simple replacement of the income lost when a company’s employee is disabled and cannot work. The worker is provided with compensation for financial loss, reimbursement for medical and related expenses, payment of damages and other accidents, etc. This kind of plan also offers death benefits to a worker’s estate, thus providing them with greater security for their families in case of their death.
  7. National Social Insurance ProgramsThis particular policy provided by the national government as Social Security for the benefit of citizens, specifically Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). They are designed to offer coverage to people who may not have an insurance plan of their own or not enough coverage in their current plan. While Social Security may not offer high benefits, it does act as a basic form of protection that can help you prevent bankruptcy or debt.

Questions to Ask before Purchasing Disability Insurance

Before you purchase a disability insurance policy, here are a few questions you should consider:

Q1. How does the policy define the idea of disability?
Q2. What is the time period of this policy? When does it kick in?
Q3. Does it make a difference if your disability allows you to continue working though not the same way?
Q4. Will your premiums be returned if you do not make a claim?
Q5. Will the policy adjust with the times?
Q6. If you shift, will the policy shift with you?
Q7. What are the credentials and past experiences of the company offering this insurance?
Q8. Under what circumstances is the policy cancelled?
Q9. Does this policy offer any tax benefits?

Once your queries have been answered then it is time to make the purchase. You should weigh in your options considering the different insurance policies available, as this will help you minimize your risks in the future, and find the best insurance plan for your particular needs.

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5 Innovative Alternatives to Long Term Care Insurance

Long term care can be a bottomless pit of expenses, and just a year of care in semi-private nursing homes can cost upwards of $150,000. Surprisingly though, only one out of every ten people in the U.S. have a plan that covers long term care, and less than eight percent are covered by a long term care insurance (LTC).
This is all the more troubling when you consider that about 70% of people will probably require long term care sometime in their lives!

Why Aren’t LTC Plans More Widely Accepted?

These disturbing statistics may in part be attributed to the drawbacks of traditional LTC insurance plans. They can be quite expensive and elderly people or those with health issues might not qualify easily (basically, those who would probably need it the most).

The biggest concern people have is probably the use-it-or-lose-it condition, which makes these policies a bit of a gamble. In case you never need long term care, you’ll probably have to forgo the entire amount you paid.

LTC Alternatives that Can Help You Protect Your Investment

There is some good news in the form of innovative alternatives that are more attractive, even for those who already have already invested in an LTC plan. We’ve listed 5 alternatives here for funding long term care, which can help to keep your investment safe or even offer better benefits.

  1. Life InsuranceThere are quite a few ways you can utilize your existing life insurance policy, or invest in another, to provide the funds you may need for long term care. With some of the offerings available in certain life insurance policies, increasing your premiums for a higher death benefit might be a better option.

    • Tax Qualified Long-Term Care Riders – Life insurance policies that offer LTC riders are becoming very popular, as they offer a hybrid structure that is highly flexible. The majority of the policies death benefit can be utilized to pay for long term care if needed. If the policy holder dies, the remaining amount is still paid to the nominated beneficiary as a death benefit.
    • Cash Value Withdrawal and Loans – If you invest in a policy that features a cash value, you can make withdrawals from the accumulated value or take loans against it to pay for long term care. Be aware that you could lose money and the proceeds may be subject to income tax, so you should research the policy terms thoroughly before using the cash value in any form.
    • Life/Viatical Settlement – The life settlement option available in certain life insurance plans can give significantly higher returns, up to three times of the cash value option. Terminally ill policy holders have the option of a viatical settlement, the proceeds of which are generally not subject to income tax. The amount of the settlement is determined by the policy’s benefits and how long they’re expected to live.

  2. Hybrid AnnuitiesApart from life insurance, a range of hybrid annuities are available with linked benefits to cover expenses for long term care. These combine the regular income from the annuity with the benefits of LTC riders. Fixed annuities with long term care riders have quite a few advantages over LTC insurance, such as:

      • With a hybrid annuity, you can invest the amount you would save for long term care or LTC insurance in an annuity that provides a fixed income during the agreed term. In case you need long term care, they give you higher payouts during that period, sometimes up to triple the amount.
      • Most LTC insurance policies require periodic premium payments that continue for life, while annuities can be purchased with a single lump-sum payment and guaranteed returns. Additionally, LTC insurance premiums can vary significantly over time, so your investments are safe with an annuity.
      • Some annuities with LTC riders have a higher interest rate on the principal when long term care is needed. Additionally, according to the Pension Protection Act of 2010, the payouts at this time are not taxable as income.
    • Traditional Income AnnuitiesSometimes the easiest ways are the best. If you’re unable to qualify for a product that offers LTC benefits or you’d rather stick with tried-and-tested sources, a traditional income annuity is an excellent option. They offer a more flexible investment option with some attractive benefits, which can be used for long term care if needed.

      • Income annuities will continue to payout income regardless of whether you require long term care or not. You can continue to build your income during retirement by purchasing annuities over time, and use these funds to supplement your pension and spread out LTC expenses.
      • With deferred income annuities, you can start investing at a younger age so you end up with higher payouts at a later stage, which is when you’re more likely to need long term care anyway. The deferral period and payout at a later age means much better returns over time, so look into this option too.
      • Perhaps the biggest advantage of investing in annuities is you don’t have to make a fixed commitment for monthly premiums. They can be purchased with lump-sum single or multiple payments which are converted into guaranteed income, so you can choose when and how to invest your funds.

    • Reverse MortgagesAnother option for funding long term care at home is line of credit reverse mortgaging. Since repayment can be extended as long as the last homeowner borrower resided in the home, it can be used if you require long term care in your home. The payouts from reverse mortgages can be in the form of lump-sum or monthly payments. However, it might not be of much use if your condition forces you to be in an assisted living facility, nursing home or similar circumstances.
    • 1035 ExchangesThanks to the Pension Protection Act of 2006, even traditional life insurance policy holders may be able to benefit from hybrid policies. The act allows for 1035 like-kind exchanges for annuities and life insurance policies to hybrid products with LTC benefits and riders. This 1035 exchange removes the taxable gain on the value of the insurance or annuity. Simply put, you won’t pay any taxes on any increase in the payouts for qualified expenses.While the guarantee of the investments being utilized and providing assured returns is lucrative, the benefits may be significantly lower if you do need long term care. There are a host of options available, but the most crucial decision is to start planning. You should weigh the advantages of each option carefully and take into account any probability of needing long term care during your lifetime.
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    Life Insurance Shopping for First Timers

    When it comes to shopping for the perfect life insurance policy, the number of options available can bewilder even people who have some experience with insurance plans. For first-timers who are completely unfamiliar with the process, it can seem like a nightmare. Fortunately, picking out life insurance does not need to be as confusing as it seems!

    Let’s break it down step-by-step for a better understanding of the process, especially for first-time life insurance shoppers.

    Process of Buying a Life Insurance Policy

    Just like cruising the market for any important purchase, choosing the right life insurance policy is not about which one is the best, but which one is best for YOU. Since these plans are designed to suit different requirements and capabilities, you need to select one that fits your needs – both right now and what you expect to need in the future.

    • Step 1
    • Step 2
    • Step 3
    • Step4

    Understanding Your Needs

    Many of us think that we only need to worry about life insurance when we have a family that is dependent on us. The fact of the matter is that a life insurance policy is an investment for your future, especially when you’ve retired from work, and you get better returns the earlier you invest in it.

    When you’re young and healthy, life insurance can cost very little, as compared to later in life when you may pay higher premiums for the same returns. Of course, that doesn’t mean you should run out and get one today – just that you should start planning for it as early as possible.

    Life insurance policies can cover everything from housing, educational and daily expenses, as well as retirement and estate planning. Take into account your current goals and motivation, where you see yourself in a few years and what you predict your expenses will be like. Based on those factors, you can gain a better understanding of what kind of plan will work for you.

    Amount of Insurance Coverage Needed

    According to a 2013 survey by LIMRA, a life insurance and financial services association, 30% of U.S. households have no life insurance plan at all, and 50% think they need more life insurance coverage than they already have. In addition, 86% of consumers state the cost of life insurance as a deterrent to buying it, and more than 50% of those surveyed said that food, clothing, transportation, energy costs and other regular expenses limit their ability to save for the future, or to buy life insurance even when they know they need it.

    Contrary to popular belief, life insurance is very affordable – if you plan it right. Understanding how much coverage you need and when you need it is the key, as well as educating yourself about the different kinds of plans available. Whether you are single or have a family to support, you can find a great fit if you calculate exactly what you need.

    Your current budget, earning capacity, age and financial goals are some of the factors to consider when you’re trying to decide on the amount of insurance coverage you require. There are some great tools available online which can help you crunch the numbers and reach a realistic estimate of the ideal coverage amount, like:

    • Life Insurance Needs Calculator by LifeHappens.org
    • Customized Life Insurance Calculator by CUNA Mutual
    • Lifetime Economic Value Tool by MassMutual

    These tools use user inputs like age, income, mortgages or debts, education expenses and more, helping you reach a projected estimate of life insurance coverage needs that are personalized as per your current financial abilities and future requirements. Just put in the numbers and remember, the more information you add, the more accurate the results!

    Choose Your Life Insurance Plan

    If you want to pick the right life insurance policy, you need to understand the different kinds available today. They all provide death benefits and/or cash value, but can be differentiated on the basis of other factors like variable/non-variable policies, duration of coverage, lump-sum or distributed premiums, payout of dividends, benefits or cash value and more.

    Non-variable life insurance plans are generally divided into four individual kinds of coverage, detailed below:

    Term Life Insurance Plan – This is one of the most affordable and flexible plans, where you pay a lower premium amount, and receive coverage for a specific duration. It’s a good choice if you want to ensure that your loved ones receive a death benefit in case of your demise, but do not want to commit to the same plan for the rest of your life. A term plan does not build any cash value, but with certain plans you may later be able to extend the coverage or convert the policy to one that does.

    Whole Life Insurance Plan – When you choose a whole life plan, you will receive an assured death benefit and lifetime coverage in addition to a policy that keeps building cash value while you’re alive. These factors, combined with a fixed premium, make this one of the most popular choices for life insurance, especially for those who planning for retirement. The downside of a whole life plan is that the premium is normally more expensive than term plans, and the cash value might build at a lower rate than other insurance plans.

    Guarantee Universal Life Insurance – As opposed to term and whole life plans that require a fixed premium, Guarantee Universal Life or GUL policies allow you to change the premium amount and schedule within certain limits. These policies also offer flexible death benefits for your estate, combined with the option to build cash value on the policy. The cash value is normally determined by the premiums you have paid, policy charges and interest rates set by the insurer. If you opt for a GUL, remember that you only receive benefits if your policy is in-force, with timely premium payments and distributions.

    Index Universal Life Insurance – With an Index Universal Life or IUL plan, you receive the same benefits of flexible premiums and death benefits offered by most Universal Life plans, but with a greater potential for cash value growth. You could receive higher rates of interest on an IUL than with a whole life or universal plan normally offers, since the interest rates are linked to percentage changes of a chosen financial market index, like the Dow Jones Industrial Average, S&P 500 or Nasdaq-100 Index. They also offer the option for fixed interest rates, allowing you a greater flexibility of choice on returns. The accumulated cash value of the policy can act as an income source, since you can choose to withdraw or borrow against it, tax-free.

    Since different companies offer varied life insurance products, you should make your final decision after you’ve checked out all the options available to you. A plan that is a great fit for most people might not fit your particular requirements, so you should turn to an expert for the final stage.

    Find a Qualified Agent

    While you could immerse yourself in research, trying to understand all the factors involved in picking a great life insurance plan, it always helps to consult a specialist. Insurance agents can help you decide on the best policy, taking you through all the nitty-gritty details and analyzing exactly what you need.

    Why Buy a Policy from an Independent Insurance Agent?

    Independent insurance agents work with a number of insurance providers rather than just working for one. The benefits of turning to one for your insurance needs are numerous, and we’ve listed a few of them here:

    • More Choices – This is the number one reason why people prefer independent insurance agents. As opposed to being restricted to plans from one company, agents can offer you a wider range of choices for just about any kind of insurance.
    • Better Value – Since an independent agent or broker does not work for a particular company, he or she can help you compare various policies that fit your needs. This allows you to find a plan that gives you the best value and service at the lowest cost.
    • Detailed Information – Rather than trying to work through the jargon used in the insurance industry alone, a skilled and qualified agent can guide you through it. They can educate your about different plans, answer any questions you have and work with you to find the best fit.
    • Claim Assistance – A life insurance agent doesn’t just sell you a policy – most will also offer assistance when it’s time to file a claim. In case of your demise (or if you need to file a claim in your lifetime), they can explain the process and ensure that your estate receives a fair settlement.

    How to Find a Qualified Life Insurance Agent or Broker

    Whether you’re searching for an agent or company online or in your local area, you need to find one that is trustworthy, reliable and helpful. In order to find insurance agents whose service and standards are exceptional, keep a few things in mind:

    • Ask for Recommendations – When you turn to friends, co-workers and even strangers and ask them to recommend an insurance agent, you are more likely to find a reliable one. Look for customer testimonials on social media sites and the company website, to understand whether people have had a positive interaction with them in the past.
    • Set Up a Meeting – Meet the agents in person to understand if they seem helpful and dependable. Ask them questions about the kind of insurance they specialize in, whether they offer products from different companies, how well they understand your needs and any specific requirements that you have, how they will help you file a claim, and more.
    • Run a Background Check – Before you sign up with an agent, look into their background, the status of their license, how long they’ve been in business, customer complaints or disciplinary action, etc. You can find information on the insurance regulator website for your state, which you can look up here.

    Of course, at the end of the day, your instincts could be the best guide. If an agent or broker seems genuinely interested in helping you find the best plan, offers information upfront and answers questions in a clear manner, you’re likely to be in good hands. If, on the other hand, they seem vague or try to push you into buying a policy without explaining it, you’d be better off looking elsewhere!

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