Do real estate agents need disability insurance?

As a real estate agent, you are constantly running around. If it's not open houses or client meetings, it's checking out new homes and businesses. If it's not researching neighborhoods, its being on the phone on the road. Even closings have you away from the safety of an office. As you can see, most of your work is physically demanding.

Think about it, when you serve your clients and show their homes you are physically going from home to home, office to closing, or even neighborhood to neighborhood. There is no easy way to do it, no any shortcuts, traveling is vital to your career. What if you could no longer do that job? What if you wanted to, but physically you couldn't?

Have you ever thought what would happen if you became sick, ill, injured, and disabled? As someone who is self-employed who lives off of the closings of their clients, how would your bills and expenses be paid if you could not work? The business and lifestyle you created for yourself and worked so laboriously for could instantly be changed. I know what you are saying, it can't happen to me, I am healthy, and I never saw it happen in my office before. You think it won’t. The reality is, that between 20-35% of real estate agents will be out of work long-term for a disability.

Your clients depend on you and look towards you for guidance, but even more importantly your family looks towards you. Your clients may love the hard work that you do, but they don't love you like your family loves you. If you missed 90 days of work tomorrow, how would it affect your child's life? Your spouse's life? These are all tough questions, and the reality of it is that these are real questions you need to be able to answer. Having no plan except the fact that you hope it doesn't happen isn't a plan. there is one way to protect your income and protect your livelihood. It's called disability insurance. What comes out to be roughly 2% of income protects a large majority of your income tax-free. This gives you peace of mind knowing if something does happen to you, you will always have something to fall back on.

I know what you are thinking, I highly doubt I'll ever be wheelchair bound or hospital bound. But in reality, it's far from what being "disabled" is. According to the Council For Disability Awareness, 90% of disabilities are from illnesses (like cancer) than from accidents. That means an illness or condition, such as cancer or a heart ailment, has a higher likelihood of disabling you than a car accident. So that mean's even if you have workers compensation, it most likely won't cover 90% of your disabilities. Now I am not saying this to scare you, but I want to give a realistic case showing why real estate agents and realtors need disability insurance. Do you have some through work? While that is good, most likely it is not enough. Why?

Most likely you pay for your group disability insurance through pre-tax deductions from your paycheck. That may seem great, as it reduces your income for tax purposes, it is not good if you actually need to take the benefit. The benefit ends up being taxable income. So basically, even though the small payment you make monthly is pre-tax, the actual benefit is taxed as income! So if you get 1500 benefit, and it's taxed every month, it really isn't 1500 a month. Come April 15th, you will have a bill due on that benefit. This makes, in effect, your net-disability pay being about 30-40% of your gross salary. Can you and your family live off 30-40% cut to your income?

The good news is that you may not need much more disability income if you have it through your job. How much more you need depends on your income and your basic expenses. Ideally, you want your disability benefit that helps maintain your standard of living, cover costs such as your mortgage, utilities, and groceries, and keep your family's future goals in place.

Now let's get into the nitty-gritty of it. You generally can cover up to 70% of your gross salary. For example, if you have a gross monthly salary of $10,000, you can cover up to $7,000. Most carriers have to underwrite you. Underwriting means they have to check your health records and income statements. Let's say you had a transplant or heart attack recently, they may make some exclusions to the policy that exclude if you have a disability because of that transplant. Also, you can't get covered for let's say 20,000 a month if you only make 5,000 a month. Most carriers will not cover high-risk jobs for the simple reason of an increased probability of disability. A Doctor in the office has a lot less chance of being disabled then a coal miner working 12 hour days. The way they classify the risk is on a scale of 1 to 5 or B to 5A. The lower the number or letter, the riskier the occupation, and the higher the premium, all things being equal. Real estate agents and realtors are typically classified as a 5 or 5A – most of the time the best available classification. Next, there is an elimination period, which is like a deductible. Instead of the deductible like in health insurance where you have to spend money, Disability insurance goes based on days until your benefits begin. For example, a 60 day elimination period means your benefit period will begin after 60 days of disability. This means you need to have adequate savings to carry you and your family until benefits begin. Some carriers allow you to earn "days" based on how long you have policies for. Let's say you have a policy 10 years, and you had a 60 day elimination period. If they give you 2 days a year good health credit, that means in year 11, you only have a 40 day elimination period instead of the 60 day period you are paying for. You can get your disability benefit for as short as 2 years, all the way up to 65 years old.

Now onto what the "definition of disability". You usually want “own occupation” coverage supported by a form of modified occupation. The plans we work with contain this favorable definition for real estate agents and realtors. Disability benefits are income tax-free. Also, as I mentioned before the benefits from group disability insurance plans are typically taxable.

Another thing to think about is optional riders at an additional cost to your policy to best fit your needs and budget. Some popular rider options for real estate agents and realtors, such as Return of Premium Rider: Provides disability insurance coverage if you need it, your money back if you don’t as well the popular Guaranteed Insurability Option Rider: Allows you to obtain the coverage you need now with the option to purchase additional coverage in the future without evidence of good health. You generally can purchase additional coverage every 2 years up to age 55.

One of the best things you can do if you own your real estate agency or are self-employed is enroll in a policy that will pay your business expenses upon a disability. The policy is called a business overhead expense policy. This doesn't need to cover your full income, but this can be cheaper for you as you are just covering your business expenses. Another great thing is that premiums are tax deductible. If structured correctly, the benefits are tax-free as well. This type of policy will ensure your business remains solvent during your inability to work from a disability. This is an additional reason why real estate agents and realtors need disability insurance.

Hopefully this gives you a solid idea why real estate agents and realtors need disability insurance. If you have any other questions, or any of this confuses you, don't be afraid to reach out to me at (718) 551 - 7131 or dperrotto@ceteraadvisors.com