People sometimes shy away from purchasing an Income Protection Plan. One reason is the cost of these policies and also the feeling of invincibility, “I’ll never become disabled.” However, let’s look at some of the fine features of these plans which when added together make for a more attractive insurance program.
First, consider the total benefit you will receive. By this I mean let’s assume your annual premium runs $2,000 annually. At age 45 your protection would run for twenty years, assuming you purchase a benefit plan to Age 65. If your benefit is $40,000 per year, if disabled, then your total benefit is an astonishing $800,000. In many instances this is a better benefit than a Life Insurance policy.
Additionally consider this. If you do become disabled, there is a standard provision that you do not have to pay the annual premiums. This obviously makes sense but people often overlook this feature.
Let’s talk about taxes. I know full well that clients, business owners are very concerned about the high taxation environment we live in today. If you desire, you can deduct the premium payment from your income taxes. Yes. You heard that right. You can deduct the premium you pay off your income tax. However, you must keep in mind that if you were ever to become disabled, the income you receive will be fully taxable. In some instance, when my team and I do reviews for clients, we offer s SPLIT PROGRAM. Part of your program will be tax-deductible and the other part fully taxable.
Want to reduce your premiums you pay for an Income Protection Plan? There are two ways one can reduce the premiums you are required to pay for this benefit. If you purchase a disability income protection plan from a mutual company, you can use the company’s annual declared dividends to reduce your annual outlay.
A second way to reduce your annual cost would be to integrate your plan with Social Security. In this program if you became disabled and you had a Social Security Income plan, the benefits from the insurance company would terminate if you qualify for Social Security. The income you receive from both would be equivalent. Because of this integration, your premiums would be lower and more affordable.
One important factor you should consider in any Disability Insurance Plan is a cost of living allowance or an Inflation Benefit Rider. As we all know, the value of $1,000 today will be worth much less in five, ten or any number of years in the future. Thus, your annual benefit will increase as the consumer price index increases. For this added benefit there will be a slight increase in your annual premiums.
If you cannot afford an individual protection plan, consider working with your employer to install a Group Disability Insurance Plan. We will discuss a comparison of these two plans in upcoming issues.