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The Whys and Wherefores of Personal Disability Insurance

If you were suddenly unable to work, could you continue to meet your living expenses?

Illustration: Dominique Blaskovich
<p>Illustration: Dominique Blaskovich</p>

How will you cover your rent, car payment, charge-account bills, and other living expense if an injury or illness prevents you from working? Sometimes disability insurance means survivability.

“It won’t happen to me.” That’s what more than half the nation bets on by not carrying disability insurance. Young people in particular view disability insurance as an unnecessary expenditure. Catastrophic illness is the farthest thing from their mind.

Yet buying disability insurance is much more than purchasing peace of mind. In 1990, there were 9 million disabling injuries in the United States, and 8.6 million were temporary; that is, the individual eventually returned to work.

Of all disabling injuries, 1.7 million were work-related, and while many of these were covered under worker’s compensation is available only to employees, not to independent contractors. The cost of accidental deaths and injuries combined was a whopping $48.2 billion in lost wages alone. If you work in the salon industry as an independent contractor, carpal tunnel syndrome can keep you out of work for weeks. So can respiratory problems, which seriously affect 20% of the industry’s work-force. Disability insurance may be something you’ll want to consider. For starters, develop a clear understanding of what disability insurance is, what it provides, and under what conditions it applies.

Owners, Beware!

If you provide worker’s compensation for your employees, be aware that if an injury is reported as being work-related, a bill may be sent to worker’s compensation. And if one is, the percentage rate of your payment balloons.

Betty Romesberg of Head Hunters in Cuyahoga Falls, Ohio, says an employee ran on a wet floor in the salon and slipped and fell. She was taken to a hospital. Although the employee was uninjured, she checked “work-related” on the hospital admission form.

The hospital automatically sent the bill, which the employee fully intended to send to her own insurance company, to worker’s compensation. “Then the percentage I paid for worker’s compensation more than doubled,” says Romesberg.

While Romsberg would have preferred to pay the emergency room fees herself, she cautions that if she had offered and a problem developed later, her payment could have been interpreted as culpability.

Since you cannot tell employees not to report an accident as work-related, the best defense is to provide the safest possible workplace.

What is Disability Insurance?

Disability insurance is protection against loss of income; it is not medical insurance. It is intended to make up for the loss of your regular salary should you become unable to work, it will not pay your doctor’s fees directly. (However, how you spend your disability insurance income is up to you.)

If you work for someone else, sick pay and worker’s compensation are forms of income protection, but they have specific limitations. An employer sets limits on sick pay, and worker’s compensation available only if your injury is work-related, and only if you’re an employee. Neither of these situations applies to independent contractors.

Disability insurance is often an optional add-on to health or medical insurance. For an additional fee, usually much lower than your medical insurance cost, you can purchase either long or short term disability insurance.

A number of nail technicians believe they don’t need disability insurance because they are covered under worker’s compensation. If your injury is not job-related, worker’s compensation will not cover it. Additionally, what defines a job-related injury is very often open to question and an employer can challenge your claim if your injury was not firmly established as work-related.

Disability insurance can provide income when you’re out of work for a number of reasons, including disability resulting from an auto accident, a fall at home, a major illness, or a chronic condition such as carpal tunnel syndrome. But, disability insurance has limitations. You can’t just say you’re unable to work and expect to collect a salary. Furthermore, disability insurance does not provide you with 100% of your income, although it can be combined with other plans.

How Does it Work?

Bill Prouty, an independent insurance agent in Tuesday Hills Calif., and who developed the disability plan offered through the Nails Industry Association (NIA), worked with several insurance companies to create an affordable plan specifically designed for nail technicians. According to him, disability insurance is intended to replace a certain percentage of your income. Costs and benefit payments vary, depending on your salary the length of time benefit payments extend, and the waiting period before you begin collecting.

“Some states, such as California, offer State Disability Insurance (SDI), which offers short-term benefits- if you’re an employee.” says Prouty. “Some states do not offer disability insurance at all, and in some of the states that do, it does not apply to independent contractors. In California, SDI lasts for six months; other independent plans offer short-term benefits for up to a year or two.

Long-term plans are next to impossible to find, unless you are a full-time employee and your employer offers long-term disability. If you are permanently disabled, you can collect social security.

“Because disability insurance is income-loss insurance, you can’t insure yourself for more than you make. Policies usually pay 50% to 60% of your income, which is determined by a review of the last three years of your tax return,” continues Prouty.

This means if you weren’t honest on your taxes, you’ll end up insured for far less than 50% of your actual income. You can elect to wait before collecting benefits-for example, 30 or 60 days. If you choose the longer waiting period when you first apply for disability insurance, your premiums will be lower. The amount of your premium is also based on how long your benefit payments last. The longer the policy extends, the higher your payments. Some policies stop paying any time your disability is deemed permanent.

To receive your disability benefits, you must be under the regular care of a licensed physician, who substantiates your disability and determines how long you should wait until returning to work.

Who and What is Covered?

To increase your protection, you must pay careful attention to how “disability” is defined in your policy. Some policies define it as the inability to work in any capacity, if you cannot perform nail services but are able to perform some offer type of work, the underwriter may decide that you’re not disabled and are therefore not entitled to benefits.

“Look at the policy’s definition of disability when you consider a plan,” says Prouty “Does it read ‘inability to perform the duties of your occupation’? The insuring clause should specify your occupation, not any occupation for which you’re reasonably suited in training, education, and experience. Otherwise, an underwriter could say. ‘You can work as a waitress; therefore, we won’t pay.’”

“Most injuries and illness are covered, unless they’re willfully self-inflicted,” Prouty continues. “You can have double coverage and coordinate disability insurance with other plans to receive up to 100% of your income, but you cannot exceed it.”

One illness that’s often excluded from disability insurance policies is AIDS (and its related disorders). Disability insurance premiums are often higher for salon industry professionals, and many insurance companies elect not to cover beauty professionals at all. The raising of rates and selective group exclusion (redlining) is legal if the insurance company can show that it costs more to insure a certain group or that it is not profitable to insure that group. One example of relining is the higher auto insurance rates for men under 25 years of age. These rates are legal because it’s been proven that men under 25 cost the insurance company more.

The National Cosmetology Association (NCA), which offers various medical and disability plans, has a supplemental cancer program that offers a $ 1 million lifetime benefit, but an underwriter may choose not to cover HIV-related cancers, Debbie Howard, insurance coordinator for the National  Hair-dressers and Cosmetology Insurance Agency (NHCIA), says of the NCA’s cancer program, “That specific plan is not for treatment for illnesses other than cancer; it is not intended for HIV-related illnesses.”

Other disabilities frequently excluded from disability insurance coverage are those resulting from war or an act of war, normal pregnancy and childbirth, mental illness, drug addiction, and air travel, and any that were sustained while committing a crime.

How Much Do I Need?

How much coverage is necessary for the average nail technician and salon owner? According to Prouty, nail technicians’ disabilities rarely extend more than two years; therefore, you may not want costly lifetime benefits. (In 1990, only 340,000 disabling injuries resulted in permanent impairments.)

Do you really need your own plan? Director Paul Mazzota of Boscovs Beauty Centers points out that the company’s sick benefits extend half pay to employees who are one three to six weeks, an adequate amount of time for someone recovering from a minor carpal tunnel operation, for example. If you’re  an employee, find out what,  if any, disability insurance your company offers, what the plan covers, and how long it extends before your company offers, what the plan covers, and how long it extends before you investigate buying your own plan. Most plans extend to incomes of $500 a week, paying 50%, or $1,000 a month. If you make a lot more, NIA will individualize your plan, but you’ll pay higher premiums.

“Look at your needs,” says Prouty. “Women who have dependent children are the most likely to find it’s important to have disability insurance; young, single people tend to ignore it.”

“If you have the ability to save, then set aside at least six months’ worth of income for emergencies. Then you can design a program with a longer waiting period and lower your disability insurance premiums.”

What Can I Expect to Pay?

How much you’ll pay depends not only on your income but on the length of benefit payments and the length of benefit payments and the length of the waiting period. It’s determined by your risk level as well. According to Prouty, your age, zip code, and whether you are a smoker or nonsmoker all determine your rates. “Balance what you need in coverage with what you can afford, “he says.

If you are an independent contractor with children, and you are the primary breadwinner, you might want coverage to extend for two years after a 30-day waiting period. If you’re single, under 25 years old, and living with your parents, you may prefer a 60-day waiting period and one year of coverage. Variables make specific figures difficult to estimate; however, NIA members can chose benefits of $400, $600, $800, or $1,000 a month. According to Prouty, a high-end benefit payment with a short waiting period, such as $1,000-a-month lifetime benefit with a 30-day waiting period, costs from $400 to $600 a year.

NCA members who elect to purchase disability insurance pay by the quarter. If you are 35 to 39 years of age and want a $600-a-month payment with a 60-day waiting period, you’ll pay $42.30 every three months on NCA’s plan. If you change to a90-day waiting period, payments drop to $24.84 a quarter. If you’re under a certain age, the NCA program’s supplemental cancer coverage is $22.50 semiannually for you or $32 semi-annually for you and your spouse.

Where Do I Get Insurance?

The most inexpensive way for any nail technician to get disability insurance (other than through a spouse’s policy) is by joining a professional association that offers it and gets low rates based on its large membership. You must join the association first and pay a membership fee; then you can elect to purchase the association’s insurance for a premium.

For information on NIA, call (800) 84-NAILS, or write NIA, 2512 Artesia Blvd., Redondo Beach, CA 90278. For information on the NCA, call (314) 534-7980, or write NCA, 3510 Olive St., St. Louis, MO 63103.

You can also explore your options with an independent insurance agent. (A “captured” agent works for a single company and can only discuss what his or her employer offers.) When working with an independent agent, be a smart consumer. Check out the agent’s reputation and make certain he or she is willing to answer all your questions clearly.

In addition, if you have a second job, you may want to explore other associations that represent that occupation; independent contractors should check out small business associations at their local library and contact them directly.

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