1%-3% Is the Answer

1% - 3% Is the Answer
Ron Cohen, RHU, RR

Doctors have been asking me the same question for 40 years. I thought it might be time to answer the question for everyone at the same time, but first, let me ask you some questions.

What percentage of your income is you mortgage?
What percentage of your income is (or are) your car note(s)?
What percentage of your income is your homeowner’s insurance?
What percentage of your income is your food?
What percentage of your income is your entertainment?
What percentage of your income is for gasoline?

If you are in business for yourself:
What percentage of your income goes to pay your overhead?

Now, the question docs ask, is what percentage of my annual income should a quality disability insurance policy cost? The answer: From 1-3% would be the normal price. Depending upon your monthly benefits, age, sex, specialty, etc. For argument sake, these percentages are just about on the money. Money, yes, that’s the key to all those questions. YOUR INCOME. Everything depends on your ability to earn an income. When that stops, forget the questions I asked and ask yourself one. Why am I spending 5% of my income on entertainment, when for about 2% of my income I can protect my income and my family?

Example: 40 Year old Doctor: Earning $104,000 per year
(I know that’s low, but let’s use that figure.)
Policy Benefits:
$5,000 Per Month
Non-Cancelable & Guaranteed Renewable Level Premiums To 65
90 Day Elimination Period Benefits Payable To Age 65
With Residual Benefits
Medical Specialty Coverage for the full Benefit Period
Annual Cost: $2570 Monthly Cost: (no fees) $214.21
Value of Benefits: $1,485,000 Non-Taxable

What percentage of your income do you spend on gasoline?
Well, that’s just about the same as the disability policy cost.
Ironic isn’t it.

Chances are, your homeowner’s insurance is more…..
If you’re in business for yourself, I guarantee your overhead is more and without you there, it really doesn’t matter.

So, when doctors ask me about percentages, I still think the same way as I did 40 years ago….1%-3% of your income guarantees your income will not stop when you are disabled. A small price to pay… for peace of mind.