Real estate agents and realtors usually aren’t thinking about disability insurance, right?
I mean, you’re busy! You are on the go all the time. Open houses, client meetings, touring homes and properties, researching neighborhoods, on the phone, and the best of all… closings! Your mental and physical ability to tour properties, represent clients, and show homes are vital to your livelihood.
What if you could no longer do that job? Have you ever thought what would happen if you became sick, ill, injured, and disabled? How would bills be paid if you could not work? The lifestyle you worked so hard for and your future plans could quickly be affected. In this article, we discuss disability insurance and the best disability insurance for real estate agents and realtors.
Why Real Estate Agents And Realtors Need Disability Insurance
Your clients are very important. There is also a group of people who are more important. Who can be more important than my customers, you think. They pay the bills.
True. They do, but they don’t love you as your family loves you. By far, if you have a family, your spouse and children rely on you more than you think. They love you more than anything.
Additionally, your clients aren’t going to pay your bills if you can’t work, right?
There are tough questions that need answering. Really, consider these questions and think about your lifestyle, your spouse, your children, and the love you have for them:
- Would you and your family be able to continue your standard of living without your income?
- If not, what changes would need to be made?
- Would your spouse have to work or work more?
- Would you need to sell your home to make ends meet?
- Who could be flexible with the children?
- Would you have the money to hire someone to take care of the kids?
As you can see, the tough questions go on and on.
I call disability as the destroyer of dreams. Your future and family dreams could be destroyed. They don’t have to, though. You see, disability insurance answers the questions above. Yes, it does! With disability insurance, you have peace of mind knowing that you have a plan – and income – in place should the unexpected happen.
Yes, But A Disability Won’t Happen To Me…Right?
You think it won’t. However, the probability of having a long-term disability is anywhere between 1 in 3 and 1 in 4 workers. Contrast this to unexpected death, say from a motor vehicle accident, which is 1 in 114. Even dying from cancer has better odds: 1 in 7
But, John, I’m not going to get hurt or be in a wheelchair, you say. Wow! I respond. If you know that, then you should not be a real estate agent or realtor. Play the lottery, please, if you know the future.
Jokes aside. In all seriousness, when we think of disability, we think of someone bound in a wheelchair, right?
The fact is, that’s not a common disability. 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 condition, has a higher probability of disabling you than a skiing accident.
Ok, John, but I have workers compensation. I don’t need to worry about money. That’s great, I say. Did you know that 5% of disabling conditions are work-related, leaving the other 95% not covered by workers compensation? That makes sense, since 90% of disabilities are from illnesses.
Let’s go back to the questions I posed earlier. What’s your plan if you can’t work?
How Disability Insurance Works For Real Estate Agents And Realtors
Hopefully, we have made a great case showing that real estate agents and realtors need disability insurance.
Do you already have some through work? While that is good, most likely it is not enough. Why?
Generally speaking, you pay for your group (i.e., work) disability insurance through pre-tax deductions from your paycheck. While that seems good, as it lowers your income for income tax purposes, it is not good if you need to take a benefit. The benefit ends up being taxable income.
What does this mean? By every April 15th each year, you need to report your disability benefit and pay taxes on it, which can put additional strain on your finances. This makes, in effect, your net-disability pay being about 30-40% of your gross salary. Can you and your family live off that?
The good news is that incrementally, you may not need much more. How much you need depends on your income. I’ll get to that in a minute.
Let’s discuss disability insurance basics for real estate agents and realtors in more detail.
Disability Insurance Policy Basics For Real Estate Agents And Realtors
While every carrier is different, here are the important disability insurance policy basics for real estate agents and realtors.
You first need an understanding of what income the carrier covers.
Most real estate agents and realtors receive commissions. They are 1099 contractors, and not employees. Many real estate agents also have partnerships and structured as an S-corp or have K-1 statements.
I really don’t want to go into the weeds here, but all the disability insurance carriers insure your net income. What is your net income? It is essentially your gross income / receipts – business expenses. The remaining amount is your net income. If you pay yourself a salary, add that back to your net income.
Why do carriers insure your net income instead of your gross income?
Your net income is the money you need to pay your electric bill, groceries, your own mortgage, etc. In other words, it’s the money you need to live on.
You’re not paying business expenses if you’re disabled, right? That’s why carriers focus on your net income. (However, real estate agents and realtors do have access to a special type of disability insurance that helps pay your business expenses. We discuss this option further in the article.)
You generally can cover up to 70% of your net income. Every carrier is different, though. Some have 60% coverage maximums. Others have more, up to 80% coverage. For example, if you earned a net income of $80,000, you can insure $4,667 per month (70% of your net income).
What’s The Occupation Classification?
Obviously, your health matters for underwriting. What you may not know is that your occupation matters, too.
Most carriers will not cover high-risk professions for the simple reason of an increased probability of disability. Carriers classify this risk from a scale of 0 or 1 to 5 or B to 5A. I’m not going into the details of the A versus B. However, you should know the lower the number, 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 – the best available!
Tell Me About This Elimination Period?
All disability insurance policies have an elimination period, or waiting period. It acts like a deductible. It is the length of time that elapses before disability benefits begin. For example, a 90 day elimination period means your benefit period begins after 90 days of disability.
Once you’ve met the waiting period, you’re eligible for disability benefits. You won’t receive disability benefits the next day. You’ll receive them around 30 days after. So, on a 90 day waiting period, expect to receive your disability benefit around day 120 of your disability.
This means you need to have adequate savings to carry you and your family until benefits begin.
The maximum benefit period is to age 67. Of course, you can select a lower one, like a 2 year or 5 year benefit period.
Definition Of Disability
The definition of disability matters. You generally want “own occupation” coverage followed by a form of modified occupation. The plans we work with contain this favorable definition for real estate agents and realtors.
Have awareness of the “any” occupation definition. According to this definition, you’ll receive disability benefits if you can’t do the work of any occupation based on your education and experience. Let’s look at a quick example that showcases the impact of the any occupation definition.
You break your leg severely and also tore your ACL. You can’t work as a real estate agent. How can you show homes and meet with clients? Your policy has the “any” occupation definition. Instead of receiving a benefit, the carrier tells you that, based on your experience and education, you could work in an office or provide customer service assistance over the phone.
If you had the own occupation definition, no doubt you’d receive that disability benefit.
Optional Disability Insurance Riders
There are various additional benefits available including, but not limited to, partial disability, recurrent disability, and a survivor benefit if you were to die from your disability within a specified timeframe.
You can add 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 include:
Return of Premium Rider: You’ll receive your premiums back if you never take a benefit. Sounds great, however, this rider option usually is very expensive.
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. (You do not need to wait 2 years if you had a life change, defined as a marriage the death of a spouse, divorce or birth or adoption of a child; Instead within 3 months of a life change, you may purchase additional coverage.)
Retroactive Injury Benefit Rider: Pays benefits from the date of disability due to injury if disability occurs within 30 days of the injury and continues through the elimination period.
Activities of Daily Living Rider: This rider pays an additional benefit if you can’t perform two or more of the activities of daily living. Additionally, it will pay if you are cognitively impaired.
Protect Your Real Estate Business If You Are A Business Owner
Remember I mentioned that you can insure your business expenses? If you own your real estate agency or are self-employed, you have an advantage. You can enroll in a policy that will pay your business expenses upon a disability. The policy is called a business overhead expense policy. Premiums are tax deductible. If structured properly, 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. Contrast this policy to a traditional disability insurance which pays a percentage of your net income.
Carriers who offer this type of insurance typically offer a discount on a disability insurance policy.
The Best Disability Insurance For Real Estate Agents And Realtors
You are probably wondering who we like to work with. First, we work with many disability insurance carriers. So, we are sure we can find one that meets your needs and budget.
However, there is one carrier that stands out to us. That carrier is Illinois Mutual. An A- rated carrier, Illinois Mutual operates in the middle-income market. More specifically, it offers a niche product designed for professions like real estate agents and realtors. They offer a variety of options that customize to your specific situation. Moreover, the premiums are generally very competitive. They even offer simplified underwriting (i.e., no medical exam) in many cases.
And, how much does this all cost? In our experience, you could spend anywhere from $1/day to $3/day or more depending on your age, income, and health. Does $3 per day sound that bad? Or even $5? No, it should not when you consider how important your ability to earn an income is to you and your family.
Now You Know About Disability Insurance For Real Estate Agents And Realtors
We hope now you have a solid idea why real estate agents and realtors need disability insurance. Confused? Don’t feel that way. We’re here to help educate you and protect your income and future. Don’t know where to start? Use this disability insurance needs analysis worksheet. Follow the instructions; it is rather easy to fill out (we at My Family Life Insurance try to make understanding insurance easy). Next, feel free to reach out to us for our assistance or a quote. We only work for you, your family, and your best interests only. We have helped many real estate agents and realtors secure the right disability insurance for their specific situation, giving them and their families peace of mind.