Why Disability Insurance Matters Most
Ryan Kittredge, President ClearPath Financial Partners, talks about personal insurance. Be sure to check out our previous podcast on insurance.
One of the things Ryan wants people to understand is the importance of Long-term disability insurance. He tells us it is an underutilized form of personal insurance and vital in protecting one’s future earning ability. As Ryan notes “if you can’t afford to take a couple percent maybe of your income to buy that protection, how are you going to take a 70% reduction if you can’t work and you’re sick or injured?” Standard disability coverages, such as Social Security or employer-provided group plans, are often inadequate due to stringent approval processes, low payout caps, unfavorable tax treatment, and restrictive definitions of disability.
He also covers life insurance noting the need for life insurance is greatest for younger individuals with high future earnings potential and significant financial obligations (e.g., mortgages, dependents), and this need typically decreased as they approached retirement and built wealth. Kittridge pointed out the psychological “sunk cost fallacy,” where people hate to give up insurance policies they have paid into for years, even after the need for the coverage has diminished. As Ryan says, “insurance is one of those things that I’ve found at least that people hate to buy, but then once they own it, they really hate to lose it or give it up. It’s this weird psychology, but oftentimes the need for these insurances decrease over time.”