Disability Insurance Articles

How High Limit Disability Insurance Affects Your Income Level

2010-08-19

Income level can be drastically different between an elementary school teacher and a professional athlete. The gap between earnings can be staggering, lower tier professional baseball athletes, for example, may make over $100,000 per month, while a tenured elementary teacher with a Masters Degree in Education may make a high of $5,000 - $7,000 per month depending on the location and other incentives. In the event the teacher experiences a disability, normal disability insurance is adequate to cover such circumstances. For other situations there is high limit insurance.

Because of the income levels for occupations with rare abilities like athletes, celebrities, business executives, doctors, key members, and others with premium employment, the cost of securing enough insurance to protect that person in the event of a work stoppage or accidental death can be very expensive.

A general accidental death and dismemberment policy is usually required to layout the foundation for incidents that may qualify for accidental death and dismemberment. A high limit insurance policy is then added to the base policy to guarantee the insured up to 65 % of their monthly income level for the term they are disabled.

The trick for the insured is to understand how coverage relates to income level and the ongoing renewability of the policy. When the policy is initiated, the current annual salary is divided over months and both parties agree. At this point, the underwriter provides risk probabilities and the costs for providing that level of monthly income for the high limit. Agreeing to the policy at this point fixes the amount the policy covers. If the insured increases his or her monthly income, the policy may need to be revised as well. As the individual's income continues to climb, so does the cost to cover that income each year during renewal periods. The result is larger premiums.

To protect against some of these negative financial variables, it is a good idea to first review a financial plan with an advisor. If the period of high income appears to be for a short period of time, then increased levels of coverage or term coverage may be more advantageous. Another option is to investigate self-insurance against current assets. This may work as a less expensive fall back strategy. Creating a cash reserve like some companies do may be used in lieu of high limit insurance.

Focusing on the details of disability insurance, especially high limit disability insurance and reviewing the limits of coverage, renewal options, and income increases can help the insured to have greater peace of mind and protect income.