An email greeted me this morning from a firm that crafts custom insurance coverage for higher risk cases that have been declined by traditional insurers.
There were three case studies. Two of three took my breath away figuratively. The email is below along with the internal dialogue that took place in my head.
Rona,
Canadians are living and working longer. In the past decade alone, the number of workers over 65 has spiked by 140%. Unfortunately, it becomes increasingly difficult to obtain adequate disability insurance for your clients once they attain age 60 or older.
→ This is absolutely true. It’s also excruciatingly expensive when combining older age with health concerns.
With issue ages up to 70 for white collar occupations and coverage amounts up to any amount justifiable, here are some examples of how our firm has helped advisors like you provide disability coverage for their older clients:
Partner in Law Firm: Age 63
With annual earnings of $2,500,000 he wanted to top up his existing Group LTD coverage with DI in order to reach 75% replacement of after tax income. We quoted a benefit amount of $65,000 per month ($78,000 less $12,000 in force LTD) payable for 24 months following a 90 day elimination period and a 3 year policy term.
→ Ok, it’s tempting to focus on the huge income and feel frustrated that your chosen career doesn’t/didn’t deliver at that level. What I prefer you focus on is that by age 63, this highly successful lawyer shouldn’t need $1,875,000 of disability insurance if he can’t work for reasons of disability. His income belies his weakened financial position.
Let’s look at the next case:
CEO of International Corporation: Age 64
With annual earnings of $1,000,000 he wanted to top up his existing Group LTD. We quoted a benefit amount of $25,000 per month ($35,000 less $10,000 in force LTD) payable for 24 months following a 90 day elimination period and a 2 year policy term.
→ Similar to the case above, this CEO has not reached financial independence by age 64 in spite of his significant professional achievements.
Business Owner: Age 60
Required $2 million in coverage to fund a buy-sell. In addition to his older age, he also had a pre-existing medical condition that made him uninsurable in the regular market. We quoted $2 million in coverage with a 12 month elimination period, medical exclusion and a 3 year term.
→ This one makes sense to me because the insurance need is contractual. The coverage is a condition of the shareholder’s agreement. It protects his $2 million asset rather than his income. It ensures that the remaining partners can afford to buy his shares without delay or difficulty if he is disabled and cannot stay involved in the business.
Insurance is a cost-effective way to protect against your most significant financial risks. These risks are greatest when building towards financial independence. The objective is to become financially resilient over time rendering such insurance unnecessary.
So, next time you hear about an old schoolmate or 3rd cousin once removed earning a high salary, driving a high-end vehicle, or sending their kids to private school, don’t compare.
Sure, many people are wealthier than you. But, many people look wealthy but are not.
Please remember this when judging your own net worth and financial/life progress relative to others.
Run your own race. Define your own finish line(s). We’ll support you along the way.
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.