The True Value of Your Benefits

What You Need To Know
“The True Value of Your Benefits”
Ron Cohen, RHU, RR

When you receive proposals from an agent or broker, they should be clear and understood. Your understanding, in other words, should also be relative to “the times”. Many life insurance producers offer their prospects $1,000,000 of level term insurance death benefit, without realizing, they may be short changing the individual’s actual “needs” vs. their “wants”. As a consumer, here are some simple thoughts, which might prove very beneficial to you.

“If you died and your (wife or your husband) beneficiary was to receive $1,000,000, what would they do with the money?” Most individuals think their spouses would pay off their homes, but that typically seldom happens, as the money is usually needed for living expenses. Therefore, the beneficiaries normally invest the money in a vehicle, such as a CD.
Let’s assume that you could find a CD at a 5% interest rate. The annual interest your beneficiary would receive would be $50,000. Now, the tax must be paid on that, thus leaving them with an annual income of a lot less than one would believe $1,000,000 is worth. So, let’s use $3500 per month as a figure… (Which is allowing for a 3-5% fluctuation in the CD market?) How much money would your beneficiary actually need to live on? $3500 per month might not be enough.
Realizing the Value of Your Disability Policy
Once you understand and realize the “true value” of current dollars and then can compare the life insurance net CD income to a monthly disability benefit, it will become quite clear, how valuable your disability policy really is. In other words, your beneficiary’s $50,000 per year taxable income vs. a $5000 per month non-taxable disability benefit…..which you would receive during your lifetime. It’s easy to understand, using this example, that a $5,000 per month disability benefit (in current times), is worth more than having $1,000,000 invested in a CD!” The lower the country’s CD interest gets the more valuable the monthly disability benefits get. The other extremely important point here is that the disability benefits remain constant. Regardless of the fluctuating interest rates, fed cuts, stock market ups and downs, “If you become disabled, nothing will change your monthly benefits…Except for the fact that they could increase. By adding the Cost of Living Rider, your monthly benefits do indeed increase at the levels which you purchased: 3% or 6%....your choice!

So, if we were to compare benefits: Using age 40
$1,000,000 of life insurance = $3500 per month fluctuating:
Due to the varying interest rate, which your beneficiary will have to shop (and shop again, after each CD period ends) for the “best rates”. When your beneficiary(ies) is or are in this position (using the principal for monthly income), “risk” is typically avoided. Normally, guarantees are more in line with their needs. Yet, recession and inflation dictate the result….the monthly income can be lower, which is presently quite obvious. In other words, there are no guarantees.

Guaranteed Benefits: During Your Lifetime

Comparing “risk to a constant”: Disability Insurance
“The odds of you becoming disabled, are 3 times greater than dying prematurely, professionals understand that and as a result, they try to insure the maximum monthly disability benefit they qualify for!” Ron Cohen
$5000.00 per month of Disability Insurance =$60,000 per year
Payable to Age 65 without COLA = $1,500,000 non taxable
Compared to a taxable benefit: In a 25% Tax Bracket that would be the equivalent of: $2,000,000.

As an individual disability policy premium remains level and guaranteed to age 65, it avoids fluctuation in uncertain times.
The policy will also provide a waiver of premium provision, which eliminates the need to pay premiums during a claim.
(Note: The waiver of premium should also be added to your life policy.)
You should also understand the actual risk vs. cost element of a disability insurance policy. As most people cannot envision themselves as being permanently disabled,
The simplest way to understand the true value of a disability policy would be, by taking the annual premium cost for the disability policy and multiply it times the number of years until you reach age 65:

Example: Age 40 x 25 years (To Age 65) = Total Premiums
Now, take the monthly benefit they will receive if they were to become disabled for 1 year: The example we’ve already seen shows: $5,000 per month x 12 months = $60,000.

Now, compare the 2 figures and you will notice that in most cases, you normally will not pay as much (in total premiums to age 65) as you would receive for a one year disability claim. If in fact, you were to become permanently disabled, the total amount of benefits received, (non-taxable) could easily be in the millions. As life insurance is usually used to protect the “loss of the breadwinner’s income”, so too is the case of disability insurance….Yet, for the insured, it is a rose that you get to smell during your lifetime…….

Life Insurance & Disability Insurance
The face amount of a typical term life insurance policy remains constant. The monthly benefit in a disability policy increase will increase with the addition of the cost of living rider (COLA). Thus, the inflationary factor alone, dictates, that the $1,000,000 dollars of life insurance over time, will decrease in value. Again, another reason to consider greater face amounts.
All in all, understanding the “true value” of money and the “true value of benefits” can prove quite beneficial when considering both your current and future needs.

P.S.
Disability Policies also allow for increases: The Future Purchase Option Rider is worth consideration.

Best Regards,
Ron
Ron Cohen, RHU,RRPO Box 298Barker TX 77413-0298281-492-2295800-398-0571ron@roncohenrhu.com
Ron Cohen, RHU entered the insurance business in 1969 and began specializing in disability insurance. In 1977, he began his own firm, Ron Cohen Insurance, Inc. In 1977, Ron founded the Houston Association of Health Underwriters and is the only president to have served two terms. He is also a board member of the Texas Association of Health Underwriters. In 2005, Ron co-founded the International DI Society. He has been a guest speaker for many insurance companies, societies, clubs, and several Disability Income Training Council meetings. In the past 2 years, Ron has authored over 200 articles advocating disability insurance to the public and the insurance industry. Ron received the National Association of Health Underwriters Lifetime Presidents Achievement Diamond Award.
You can reach Ron at ron@roncohenrhu.com or 281-492-2295.