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Beth Pinsker: Why you should protect your salary with ‘own occupation’ disability insurance, just like you insure your house

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Say you’re a professional football player and you get injured. You can no longer compete at a high level, but you can have a successful career doing something else.

The salary differential: around $1 million a year vs. maybe $75,000. Plus, you no longer qualify for disability insurance because there’s something else you can do for a living. NFL players in particular have short careers — an average of around three seasons — as injuries and grueling competition take their toll. The Buffalo Bills’ Damar Hamlin suffered a high-profile injury last week, and while he will be earning his full $825,000 this season, his future is in doubt.

The same is true for movie action heroes, CEOs, surgeons, dentists — high-paying jobs that require specialized skills.

Financial adviser Jen Grant, of Perryman Financial Advisory in Dallas, had such a dentist client who had something called “own occupation” disability insurance that covered his salary while he recovered from an injury and figured out a new path.

“He was very grateful because he was able to pivot and build a new career as a teacher and consultant while still receiving disability pay,” Grant says. 

Only 20% of workers have any kind of disability insurance policy, according to LIMRA, a life-insurance trade group, despite the fact that 40% of employers offer group policies. The average 20-year-old has a 25% chance of needing it at some point before they retire.

“Own occupation” disability insurance is not the standard that comes with employer-sponsored policies — the kind you check-mark during open enrollment and immediately forget about. Most policies cover merely “any occupation” at 60% of salary and stop coverage if you get another kind of job. Because it takes extra steps and expense to seek out “own occupation” policies, few have this enhanced coverage, even those at high risk. 

“If an injury or illness could make you unable to perform the substantial duties of your own occupation, but might not prevent you from practicing any occupation, you’ll want to have an own-occupation policy,” says Loretta Worters, vice president of media relations for the Insurance Information Institute

What it costs

Specialty high-earners like football players and actors often get standard policies and then turn to specialized insurance providers to add additional coverage. 

“It’s a very niche market,” says Frank Zuccarello, a partner at Exceptional Risk Advisors, based in Mahwah, N.J., which works with Lloyd’s of London on policies. “We basically work through business managers, agents or financial advisers to educate people about the need for disability insurance, and to insure their livelihood like they would their houses.”

Policies are crafted for each individual, based on their income and risks.

“If you have a football player with a three-year contract for $20 million, we try to come up with a policy that covers the taxable amount in case that person becomes disabled and never signs future contracts,” says Zuccarello. 

Jeremy Renner’s recent snowplow accident is one example of a situation that could befall an entertainer. Some of Zuccarello’s entertainment clients have had voice problems and could no longer perform. Some needed to stop working because of cancer treatment. One had a fall and broke a hip. Mental health and substance abuse are typically not covered as qualifying perils, Zuccarello says. 

The cost works out generally to be less than 1% of earnings, so on $1 million, it might be $6,000 or $7,000 a year, Zuccarello adds. Entertainers usually have a 90-day elimination period, where you have to pay all your expenses until the policy starts, but it’s more like one year for athletes. Benefits can last a range of years, depending on the age of the person and how much they’re willing to pay. 

For regular professions, costs vary greatly based on the duties involved, age of the person, location and gender. Jobs that involve manual dexterity, like medical professions, are especially at risk. And “women pay higher rates than men, all else being equal, which is the opposite of life insurance,” says Jim Coyle, a brokerage sales manager for The DI Center in Allen, Texas, because they are at higher risk of disability.

According to estimates generated by Coyle, a 40-year-old female architect earning $200,000 could expect to pay $390 a month for an “own occupation and not working elsewhere” policy that would provide a $9,700 a month benefit, while a male would pay $270. On the other hand, a dentist of the same age and salary would pay $650 if female, and $450 if male. 

A 50-year-old lawyer making $500,000 could get an $18,000-a-month benefit and expect to pay $790 a month if female, and $660 if male.

“Dentists do a lot of stooping, leaning and performing procedures at difficult angles. They have high rates of disability — anecdotally, there seems to be many back and neck issues,” says Coyle. Meanwhile, architects and lawyers are lower risk, because they spend more time sitting at desks. 

Now, for a cautionary tale

When Frank Summers, 53, was starting out in his career, he had a medical issue and couldn’t work for a year. Bills were piling up, so he didn’t listen when doctors told him to go back to work only part-time, and he reinjured himself and ended up back on disability. He racked up about $30,000 in debt and spent years paying it off. 

Now a financial adviser based in Charlotte, N.C., Summers tells this story to clients when he’s looking over their insurance coverage and trying to educate them about the need to get own-occupation coverage. Does he have this for himself?

“Oh yes, are you kidding? When that bill comes every month, I write a check, and I go right back to the mailbox to send it out,” he says. 

Summers has actually been covered for this risk for some time and pays only about $700 a year because he has had the policy for so long, he says. He thinks anyone who relies on their own salary for their living expenses should be in the market for this kind of coverage, not just high-income professionals.

“It’s a relatively small addition to the cost of overall coverage. But the more specialized, the more it becomes an important thing,” he adds. 

Some clients shy away from thinking about disability at all and don’t like sales pitches, so Summers’ most persuasive argument is to send them back to their employers to ask what their included disability benefit actually covers. When people see what they’d get without the “own occupation” designation, which often means they’re faced with a lot of caveats and limits on benefits, they typically sign up for the extra coverage. 

“A big part is just understanding,” says Summers. 

Got a question about the mechanics of investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write me at beth.pinsker@marketwatch.com

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