ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, September 23, 1996 TAG: 9609230110
SECTION: MONEY PAGE: B-6 EDITION: METRO
SERIES: Updating your insurance
SOURCE: MAG POFF STAFF WRITER
WHAT is your most valuable asset? Your house, maybe, or your car? You have almost certainly insured both of them.
What about your paycheck? Or more to the point, your ability to earn a living?
If you are 35 and earn $50,000 a year, your earning power to age 65 is $1.5 million - not counting any future raises or significant promotions, according to the Virginia Society of Certified Public Accountants.
A 30-year-old man or woman has a 70 percent chance of suffering a disability that lasts at least 90 days before reaching the age of 65. That man has a 20 percent chance of suffering a two-year disability and a 15 percent chance of one that keeps him out of work five years.
Yet disability insurance, which is designed to replace lost income rather than pay medical expenses, is "kind of a tough sale to be honest," reported Whitney Brown of Business Management Services in Roanoke. He's one of the few people locally still trying to sell policies to individuals. More often, disability insurance is sold as group coverage to employers and others.
"There's a need for it," Brown said of disability insurance, because the market is "probably underserved."
The first impediment to people buying policies, Brown said, is that many workers have some form of disability insurance on the job. But many of these policies are very limited in scope, typically providing coverage for no more than two years.
He has seen a trend, on the other hand, for employers to invite a company such as his own to sell policies to workers as a group instead of the employer providing the insurance.
Another factor is the cost. Brown said policy prices vary widely, depending on the applicant's age, occupation, income and choice of options, but most people see the coverage as costly.
Finally, he said, policies issued in the late 1980s and early 1990s were "too rich and too open-ended." So much so that insurance companies suffered heavy losses. In the last two years, Brown said, the companies have retrenched so that it is difficult to find coverage specific to occupation.
In the past, for instance, a surgeon would have been considered disabled under the policy if he could no longer perform surgery. Present-day coverage would not consider the surgeon disabled if he could still practice any other type of medicine.
Competition in the field is also diminishing. Brown said two of the largest companies still offering disability insurance - Provident Life and Accident Co. and Paul Revere Insurance Co. - are in the process of merging.
A large independent insurance agency in the valley, Charles Lunsford Sons & Associates, no longer sells disability coverage. Shenandoah Life Insurance Co. of Roanoke dropped individual disability policies several years ago. Allstate Insurance Co., which has a regional office in the Roanoke Valley, also doesn't sell such coverage.
The Virginia Corporation Commission said Social Security provides some disability protection, but only for those who are severely disabled and unable to work.
Other sources of funds for those unable to work include worker's compensation benefits for those with work-related injuries or illness, civil service disability pay for federal or state government workers and automobile insurance that covers disabilities resulting from accidents.
But these sources don't help you if you can no longer work because of some illness such as a heart attack or stroke, or if you fall down the stairs at home.
The commission said you may need individual disability insurance, either to supplement group insurance or because your employer offers very limited coverage, if any coverage at all.
The commission made these points about disability insurance:
* Monthly benefits are usually 70 percent to 80 percent of your income at the time of purchase, but some policies offer cost-of-living adjustments. The Virginia Society of Certified Public Accountants, however, said many insurance companies limit the benefit amount to only 60 percent of the customer's income.
* The definition of the term "disability" is important. Some policies pay benefits if you are unable to perform the substantial and material duties of your regular occupation. Others pay only if you can engage in no occupation or employment for which you are (or become) qualified by education, training or experience. Nor can you collect if you are engaged in any occupation for wage or profit.
* Some policies pay only for disability caused by accidents, but you want to be insured for disability caused by illness as well. As you evaluate policies, be sure that both accidents and illnesses are covered.
* Benefits might begin any time from one month to six months or more after the onset of disability. You can keep premiums lower by electing a later starting date if you have emergency funds to tide you over the first six months.
* Benefits might be payable for a period ranging from one year to a lifetime. Because disability benefits are designed to replace earned income, most people do not need benefits extending beyond the working years. But it's generally wise to insure until age 65 because a lengthy disability threatens your financial security much more than a short disability.
The CPAs said you should look for a policy with a guaranteed annual premium that cannot be increased. Because disability premiums are based on your age when you apply, purchasing disability insurance at a younger age will provide you with a lower premium. You'll also want to be sure your policy cannot be canceled.
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