Broker Check

Monday Money Report

| September 14, 2020

Last week, the market had a second consecutive week of losses, coming down from all-time highs. Is it time to panic? Probably not.  Since the low in March, the S&P 500 has risen over 40%.  Year to date, it is still up over 3%.  This up one day, down a day performance is pretty normal for the market.  We have periods where we have less volatility, and periods with more volatility, but over all you can expect to see about two-thirds of the time the market is up.  Which means it’s down about one-third of the time.  If you’re a baseball fan, a .600 batting average is pretty good. And if you’re a long-term investor, it’s helpful to know the overall market has never had a negative 15 year run.  Investing is all about time in the market.

In past episodes we have talked about life insurance and long-term care insurance.  One other area that is often overlooked is disability insurance.  This insurance replaces a portion of your income if you are unable to work.  There are two kinds of disability insurance: short-term and long-term.  Short-term insurance is useful for accidents or recovering from an illness.  Coverage generally starts day one for an accident, and day 7 for an illness, and lasts about 90 days. 

Long-term insurance typically starts after 90 days, and runs until retirement age.  Traditionally that was 65, but we are starting to see policies issued to age 70.  These policies pay you 60-65% of your income if you are unable to work. That definition of unable to work will vary based on the policy.  The highest standard is own occupation, which says that if you are unable to perform all of the duties of your current occupation, it will pay benefits.  So if you’re a surgeon and can no longer operate on patients, it will pay benefits even if you can still teach at a medical college.  These policies have higher premiums than ones that only look at your overall ability to work. 

Some policies have residual, or partial, benefits.  If you can work part-time, or in a reduced capacity, it will pay benefits based on how much your income was reduced due to the disability.  Some include coverage if you need to provide care for a family member.

Policies typically only cover 60-65% of your income to avoid creating a moral hazard, or a reason to claim a disability when there isn’t one. If you pay the premiums with after-tax dollars, the benefits come to you tax-free.  If you factor in taxes, reduced commuting costs, etc., 60-65% of your income is pretty close to your net before you were hurt or became ill.

Disability insurance is also different than worker’s compensation.  That only covers you for accidents and injuries incurred on the job, while disability insurance doesn’t care how or why you are unable to work, just that you can’t.

If you’re paying into Social Security, you also have disability coverage through Social Security.  While these benefits are not going to replace your full income by any means, it does include the added bonus that, once you have been disabled for two years, you qualify for Medicare.  Some disability insurance policies coordinate with Social Security, so your benefits will be offset by what you receive from Social Security.

The easiest and least expensive way to obtain disability insurance is through your employer, if they offer it. If you’re fortunate enough to have group coverage at work, and have the option, pay for it with after-tax dollars.  During open enrollment, consider choosing both short- and long-term disability if offered.  Premiums for a personal policy are generally 2-3% of the income you are insuring, although that will vary based on your occupation and policy specifics.  At CovingtonAlsina, we’re independent and can provide you with quotes from several carriers.

We also have some great educational events over the next two months, including virtual talks on Healthcare in Retirement, Social Security, and our Retire on Purpose and Women, Wine and Wisdom seminars.  You can register for these and more on our website,, or check out our Facebook page to learn more.  

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.