1. Bruce D. Smith, CFA®
, Estate and Business Advisor with Center for Wealth Preservation
And yes, it could happen to you.
Consider these statistics:
SOME FACTS ABOUT DISABILITY
• Just over 1 in 4 of today’s 20 year-olds will
become disabled before they retire.1
• Only a small fraction – 5% – of disabling
accidents and illnesses are work related.
The other 95% are not, meaning Workers
Compensation doesn’t cover them. 2
• 68% of American employees live from paycheck
to paycheck,3
without enough savings to cushion
the financial impact a disability may cause.
Many people assume that most disabilities are caused
by a catastrophic event such as a disabling accident.
However, according to The Council for Disability
Awareness 2013 Long-Term Disability Claims Review,
approximately 90% of all disabilities are caused by
illnesses rather than accidents.
If you think you’re fully covered
in the event of a work-ending
disability, think again.
We are all too familiar with the reasons people
have for not buying disability income insurance.
The two reasons he hears most often: (1) I’m young and
healthy, and I work in an office so nothing will happen
to me. (2) I have coverage through my job so I’m all set.
Nothing could be further from the truth.
People buy insurance to cover the loss of assets like a
home or a car. But they don’t think of their ability to
earn an income as their most valuable asset, and make
sure that asset is fully covered. My job is to make sure
they understand who depends on their income and
help them with plans to manage the risk of what if it
happens to me?
Disability can happen to anyone, anytime, anywhere.
I ask clients, what would happen if you couldn’t work
and earn an income? Do you realize the enormous
impact that a work-ending disability, even a temporary
one, can have on both your current lifestyle and your
financial future?
Could You Live on Half a Paycheck?
1
U.S. Social Security Administration, Fact Sheet February 7, 2013
2
CouncilofDisabilityAwareness,Long-TermDisabilityClaimsreview,2013
3
American Payroll Association, “Getting Paid in America” Survey, 2012

2. $90,000
Net Income
$100,000
Salary
$45,000 Net
GLTD Benefit
$20,000 Bonus Net Income
After a DisabilityNet Income
Annual
Gross Income
Disability Income “GAP” Example
THE GROUP COVERAGE “GAP”
Most people believe that group long-term disability
insurance through their employer has them fully
protected and that’s all they need. That’s a good place to
start, but there are significant limits to group long-term
disability (GLTD).
For example, GLTD traditionally covers up to 60% of
income – this doesn’t include bonuses or commissions.
In addition, there are maximum monthly caps on all
group DI plans. Understanding how GLTD plans work
is very important for everyone.
Let’s see what that looks like in a real world scenario.
• An employee makes a salary of $100,000 and
earns an annual bonus of $20,000 for a total of
$120,000 gross income.
• Assuming a 25% tax bracket, the employee’s net
income is $90,000.
• His or her GLTD plan provides 60% of
income (excluding bonuses) up to $5,000 per
month – taxable.
• Now, during a period of total disability when
living expenses can increase dramatically, this
employee’s income is reduced to $45,000 and he
or she is in effect forced to live on half a paycheck.
Other important limitations of GLTD that most people
don’t consider:
• Benefits are taxable when the employer pays the
premiums, further reducing the income amount
the disabled employee can use for living expenses.
• Generally, benefits aren’t paid on a partial
disability.
• Policies are not portable; if the employee leaves
the job he or she cannot continue the coverage.
Finally, GLTD is subject to occupational restrictions,
meaning in order to qualify for total disability
(required to receive the monthly benefit) the employee
must be unable to work at his or her stated occupation
for a specified period (generally two years), and then
unable to work at ANY occupation for which he or she
is capable by reason of education or training thereafter.
In effect, the insured employee may be required to
go back to work as long as he or she is educationally
qualified. In addition, people who work in highly
specialized fields are most affected if they don’t have
appropriate coverage. Under a plan without “own
occupation” coverage, a surgeon who suffers a hand
injury and can no longer operate but could still practice
medicine on a limited basis may not receive benefits to
make up the difference in income.
It is imperative to review your employer-paid group
disability just as you would review your health
insurance coverage during your annual benefits
enrollment and make sure you understand exactly
what is, and isn’t covered.

3. BCC4892 915 CRN201709-195832
FILLING THE GAP
WITH SUPPLEMENTAL DI
In order to reduce the gap between pre-disability
income and income during a period of disability,
purchasing an individual disability income policy to
supplement group coverage is critical. No insurance
company will provide a policy that replaces 100% of
an employee’s salary, but the combination of group and
individual coverage means that a work-ending disability
doesn’t have to be a financial catastrophe.
There are significant advantages offered by owning a
supplemental disability income, or DI, policy which
provides benefits independent of any group coverage
already in place:
• The monthly benefit is paid tax-free because the
policy premiums aren’t paid by an employer.
• All income, including bonuses and commissions
can be protected.
• A supplemental DI policy can provide strong
coverage for a partial disability – something that
occurs more often than total disability.
• You own the policy – if you leave your job, the
policy goes with you and the coverage stays in
place as long as you continue to pay premiums.
• You are able to get true “own occupation”
coverage so you cannot be forced to go back
to work.
A supplemental DI policy can be designed that is
flexible enough to keep up with the changing needs of
your lifestyle by adding riders, which add to the cost
of the policy. For example, many policies offer a rider
that allows for an increase in benefit amount as income
increases, without medical underwriting to prove good
health. A rider is also available to provide automatic
cost-of-living benefit amount increases.
The ability to protect contributions to a retirement plan
is often an overlooked benefit of a supplemental DI
policy because working people often miss the fact that
they won’t be able to continue their retirement plan
contributions if they suffer a work-ending disability.
GROUP PURCHASE CAN LOWER COST
Business owners can make supplemental DI available
to their employees, who pick up the cost themselves
but can benefit from a premium discount of 15–25%
as long as three or more people apply.
Large companies often utilize a plan that offers the
same 15–25% premium discount and guaranteed issue,
meaning that all eligible employees will be offered
a policy.
FINANCIAL SERVICES PROFESSIONAL
When you’re looking to determine the type and amount
of supplemental DI that’s right for you, it’s best to work
with a financial planner with knowledge, experience,
insight and an active interest in your financial success.
A skilled financial planner can not only advise you on
the type and amount of disability income protection
that is right for you, he or she can coordinate both your
personal and your business plans with your attorney,
your accountant, and any other professional advisors
with whom you work to help you achieve what is most
important to you.
Bruce D. Smith, CFA®
Estate Business Advisor
Center for Wealth Preservation
6800 Jericho Tpke., Suite 202 West
Syosset, NY 11791
Office: 516-682-3347
Email: brucedsmith2@financialguide.com
www.cwpmetro.com