By Randy Neumann
The above is a line from the classic film, “On the Waterfront,” when Terry Malloy (Marlon Brando), a fighter who almost made it, decries his fate to his brother Charley (Rod Steiger) who convinced him to dump a fight for a bet. In one of the best scenes in the movie, shot in one take in the back of a taxi cab, Terry says to Charley, “I cudda been a contenda. But now I’m a bum. I got a one way ticket to Palookaville.”
Well, a lot of life’s happenstance can provide that dreaded ticket. What can happen? You can become ill or disabled. You can die young with others depending on you. Your property can be stolen or damaged. You can be sued for liability. And, at the end of your life, you can blow all of your money on a nursing home.
What are you doing about these perils?
In the absence of good planning, most people accumulate a hodgepodge of insurance policies that may, or may not, adequately cover their risks. This column is about an oft-overlooked risk – long-term disability.
Let me pose a question. If you had a goose that laid a golden egg once a week, would you insure that goose? Of course you would. Well, if you have a job or a business, you are the goose because it is you who produces a paycheck every week.
Have you insured your own goose? Perhaps you should? According to the American Society of Actuaries, the risk of disability is greater than the risk of death between age 25 and 65 at every age. Chances are one in two that a 30 year old will be disabled for more than three months before age 65. What would happen to you and your family, should you become disabled for more than 90 days?
A financial planning basic is that most people should set aside an “emergency” fund equal to three to six months living expenses for a “rainy day.” An emergency fund is a liquid (easily turned to cash) asset. Examples of emergency funds are money markets and savings accounts. An emergency fund can also be a line of credit, preferably secured by your house for tax purposes. But what if you become disabled? What if it rains for a long, long time?
Well, you may be able to generate income from your assets. This assumes, however, that 1) you have assets, and 2) you are willing to invade monies, which may have been earmarked for college education(s) or retirement in the event of your disability.
It also assumes that those funds are liquid, and are generating current income. If they are not liquid, selling long-term assets, prematurely, can cause significant losses. Having to trespass on assets that were set aside for other purposes is like hopping a train with Marlon Brando, as in “It’s a one way ticket to Palookasville.”
If you find the foregoing disturbing, you might consider insuring against the catastrophe of a long-term disability.
The first place to look is on the job. Many employers provide some long-term disability benefits as a paid benefit or it may be available for purchase in a cafeteria plan. These would be in addition to state cash sickness benefits, which are short-term. Look closely at your coverage. The insurance may cover only a small portion of your income and peter out in a couple of years. Also, group coverage usually has offsets. That means if you receive a benefit from another source, for example, private insurance, your group payments will be reduced.
Although Social Security pays a disability benefit, counting on it is chancy. They turn down two-thirds of all claims (which is why you always see ads in newspapers from lawyers who want to plead your case). One reason that they don’t pay most claims can be found in their definition of disability. It includes the words “totally and permanently” and “expected to die.”
OK, let’s say you’ve analyzed your current group and government benefits and find that there is a $1,000 shortfall between what you need to pay your bills and what would be available should you become disabled. What to do?
If you can, increase your company benefits. If you can’t, you might consider purchasing an individual disability policy from an insurance company. Shop carefully because what you buy may have to last for a long time (typically to age 65), and, someday, you may really need it.
P.S. In the 1990s, I met Bud Schulberg at a book signing in East Hampton. After introducing myself, he said,” I love to watch you referee and I loved to watch you fight.” Needless to say, I almost fell over because here was “The Man” who wrote “On the Waterfront,” “The Harder They Fall” (Humphrey Bogart’s last movie), “What Makes Sammy Run” and other great works.
For the next 10 years, I got to hang out with him and his son, Benn, who was 28 years old when we first met (he has a sister 39 years his senior) at the Irish pub in Atlantic City after the fights. Bud died in 2009 at the age of 95 – still sharp as a tack.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann, CFP® is a registered representative with and securities and insurance offered through LPL Financial. Member FINRA/SIPC. He can be reached at 600 East Crescent Avenue, Suite 104, Upper Saddle River, NJ 07458, 201-291-9000.