Written By Dennis Hornsby, CSLC®
When discussing disability insurance with clients, many of whom are surgeons or dentists, it’s clear that even a simple hand injury can dramatically affect their ability to work. Other professionals, like certified public accountants (CPAs), are less likely to have a disability impact their employment. But that doesn’t mean they should skimp on their insurance coverage.
If you’re a CPA, you went through a significant amount of higher education to establish a well-paying career. How long could you survive if a disability impacted your ability to earn an income?
How long-term disability insurance safeguards CPA salary
Long-term disability insurance is a crucial part of financial planning. It’s income protection if you can’t work due to illness or injury. A typical disability insurance policy protects between 40% and 60% of your income. Benefits are paid after the policy’s elimination period (i.e. waiting period), which is commonly 90 days.
Why disability insurance is a CPA’s best friend
After all the time you spent pursuing your career, it’s common to rack up significant financial obligations. Besides student loans, routine expenses include expensive car payments and homes with a large mortgage payment.
Related: CPA Mortgage: Mortgages for Accountants with 0% to 10% Down
Life insurance can protect your mortgage in the event of untimely death, but what about a scenario where you’re alive but unable to work?
The typical length of a long-term disability is 2.5 years. However, that’s just an average — some disabilities are shorter, while others can last much longer.
Social Security disability is notoriously difficult to qualify for and an approval or denial can take a ridiculous amount of time. Plus, the average Social Security disability benefit is just $1,714.08 per month, according to March 2024 data from the Social Security Administration. That amount can fall short of covering your monthly expenses.
Employer disability plans: Are you really covered?
You could fall back on your group disability insurance plan to help cover costs, if that’s a benefit your employer offers. The full monthly benefit is tax-free if you pay the premiums yourself, but you might owe taxes on the amount if your employer pays.
Notice an issue there? Some large CPA firms might offer a group long-term disability plan. However, if they pay the premiums, they get the tax deduction, leaving you to pay taxes on the disability benefits if you ever need them.
Besides footing the bill for taxes on the benefit amount, you might not get a choice in the finer details of the policy:
- Your policy's definition of disability might not include own occupation coverage.
- Your coverage may not include partial disability benefits.
- You may not get to choose the insurance agency that provides coverage.
Worst of all, if you have to leave your job, voluntarily or not, it’s unlikely you’ll get to keep or convert your policy.
A group insurance plan can also limit the amount of coverage an insurer is willing to offer you on a private policy. Additionally, since group plans are often mandatory, small firms without existing group plans or being self-employed might be a more attractive job opportunity than previously thought.
Why your own disability policy is non-negotiable as a CPA
Here’s a fun fact for you: Of the “Big 5” disability insurance companies for disability income (Guardian, MassMutual, Principal, Standard and Ameritas), all of them consider CPAs to be in the highest rating class among non-medical professions.
What does that mean? From their perspective, CPAs are incredibly low-risk to insure, which translates into lower premiums for coverage.
In one test case I ran for a healthy 28-year-old male CPA from Ohio, premiums for a policy to protect $100,000 in annual income were less than $100 a month. In this instance, the rate included catastrophic disability, own occupation coverage, and cost of living and residual disability riders.
Another surprising twist?
All of the Big 5 companies can include presumptive disability on the policies free of charge. This means if you lose sight in both eyes, hearing in both ears, both hands, both feet, or one hand and one foot, the policy pays disability insurance benefits until the end of the policy (usually age 65).
You could still be working full-time as a CPA, and the company wouldn’t care.
Must-have features of a CPA disability insurance plan
A good disability insurance policy for a CPA should include several key features. The two most important are own-occupation disability insurance coverage and partial disability, which is sometimes called residual disability.
Own-occupation policy
Given the rates CPAs pay are so low (compared to other professions), I recommend having own-occupation coverage on your policy. This is crucial — if you suffer a disability that prevents you from performing your occupation, you’ll get the full benefit amount, even if you’re able to work at another job.
You might say, “I don’t know what job I could realistically do if I couldn’t function well enough to use Excel,” and I’d say that’s a fair point. Still, I don’t generally recommend dropping the own-occupation definition of disability. But if money is tight, it can be a way to drop the premium even more.
Partial disability rider
Including partial or residual disability coverage in your policy is optional, but I never recommend skipping it. This benefit is the one you’re most likely to use. Without it, your policy pays nothing unless you are 100% disabled and unable to work. Most disabilities are partial, not total disabilities.
CPA’s guide to choosing the best disability insurance provider
To see which insurer makes the most sense for you, I recommend talking to an independent insurance agent or broker. This way, you can get quotes from all of the Big 5 companies to find the cheapest option with the best coverage.
Some brokers even have exclusive discounts with different carriers. For instance, if you’re with one of the Big Four CPA firms (Deloitte, Ernst & Young, PricewaterhouseCoopers or Klynveld Peat Marwick Goerdeler), it’s likely you’ll have a multilife discount available to you.
A knowledgeable broker can find discounts for you, and if they can’t offer them to you, an ethical broker will connect you with another broker who can. Some are knowledgeable in long-term care insurance and life insurance, and can handle that aspect of insurance planning, too.
Most importantly, the agent you buy from will help you with servicing your policy, from getting you through the underwriting process and collecting your first premium payment to helping you place a disability claim in the future.
Related: Disability Insurance Broker Fees? How to Protect Yourself
Insider tips: Practical guidance for buying CPA disability insurance
You’ll want to get clear on what the policy covers and what it doesn’t. Understanding specific exclusions or benefit caps can ensure you don’t have unexpected gaps in coverage. Additionally, here are a couple of bonus tips to consider before purchasing a policy:
- Maximize the monthly income on the policy upfront. Your premiums won’t get any cheaper than what you’re quoted today. Every year you get older, the rates go up — unless you already bought your policy. Then, it’s renewable at the exact same rate you were paying when you bought it at 28, up until the policy ends.
- Accounting firm owners should consider business overhead expense insurance (BOE). This coverage is on top of an individual policy and pays employee salaries and other company expenses in the event of the business owner’s disability. This way, you don’t have to fire everyone and rehire new people once you recover (hiring the same people might be awkward).
- Ask the insurance agent to check your eligibility before going through the underwriting process. Here’s why: Getting declined by one insurer will most likely make you uninsurable with every other disability insurance company (they all share medical data through a central database). A good agent can check this ahead of time to avoid surprises as long as you’re honest about your medical history.
If you’re exploring coverage or ready to purchase a policy, reach out to SLP Insurance. Get started by requesting a quote using the form below. One of our expert agents will guide you through the process and answer any questions you might have.
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