CPAs / Accountants
Disability Income Insurance for CPAs / Accountants
We work with CPAs in two ways; helping them choose their Disability Insurance policy, and in our role as an insurance professional. Individuals, families and businesses have a team of advisors for their financial affairs; a CPA, insurance professional, attorney, financial advisor, etc. And we have learned that out of this financial team the “quarterback” so to speak is the CPA. They help call the shots, lead the client, and help coordinate the other advisors’ work. One example of this is that when a new client tells us their CPA referred them, we know they are serious about looking at insurance coverage, as they are acting on the advice of their trusted advisor, their CPA!
As a CPA your mission is to guide your clients to solid financial footing and keep them there. May we boldly suggest Disability Income Insurance is the solid rock foundation of that work! See The Principal’s (a disability insurer) illustration we think is such a great way of explanation. The goals of home ownership, business ownership and success, comfortable retirement, and wealth transfer to the next generation, they all rest on a foundation of income protection, of making sure the client can earn an income, in health and in sickness (or injury). You need Disability Insurance, and with it in place, should confidently suggest the coverage to your clients as well.
Why is it so important that CPAs / Accountants have Disability Income Insurance in place?
One of the factors of how insurance companies price and offer Disability Income Insurance is occupation. And that’s not so much because of the risk of their occupation while at work (that is more Worker’s Comp.’s interest), but because of how they do their job. Some occupations use their bodies most (think laborer). Others utilize a good mix of cognitive ability and their bodies (think surgeon). And still others, CPAs included, rely most on their cognitive ability. In short, they are the “brains” of the operation.
So some CPAs and accountants we talk to assume they don’t need Disability Insurance…they probably will not be injured on the job, right?
It turns out, only 10% of disability claims with insurers were due to injury! 90% are due to
some type of illness, and many of the claims are related to cognitive issues:
18% are due to cognitive ability / nervous system disabilities
15% are due to mental health / substance abuse disabilities
And if you suffered a disability that affected your cognitive ability, even if the rest of your body worked fine, you would not be able to act on all the knowledge you have worked to master, understand and distill in clear. concise terms to your clients. Nor the complex financial work you complete on behalf of your customers. In other words you could not earn a living. And your family budget would not be funded. Disability Insurance can protect you.
Can’t I just choose the Disability Insurance offered through the AICPA LTD Income Plan (Prudential)? It is endorsed by the AICPA, so it has to be the best choice, right?
The short answer to those questions are you may want to choose this as secondary group disability Insurance. But it is not true individual Disability Income Insurance.
First, you must understand that there are group Disability Insurance policies (one policy type for all, a contract between a group and the insurer, not you, few promises made) and individual Disability Insurance policies (underwritten to your specifications, many options to choose from, a contract between you and the insurer, many promises made). The AICPA LTD Income Plan offered Disability Insurance is a group plan. The stronger most people choose, and we research and offer, are individual Disability Income Insurance policies.
There are many differences, but the one to focus on are the “promises made” by the insurance company. As that is what all insurance is based on, and why you pay monthly costs to an insurer for in the first place….the promises the insurance company makes in the case that a disability prevents you from working. Below are four (4) main differentiating factors when it comes to “promises made” with individual Disability Insurance policies from multiple insurance companies vs. the AICPA offering.
Individual DI policies are “non-cancellable and guaranteed renewable.”
Individual Disability Insurers offer policies that are "non-cancellable and guaranteed renewable." This promise means the only reason the coverage can be terminated is for non-payment of premium costs.
The AICPA plan makes no such promises, reserving the right to cancel the coverage if they no longer sponsor the coverage, or choose to work with a new insurer.
The promise of non-cancellable and guaranteed renewable ensures you always have access to DI coverage, the exact same coverage you have now. The AICPA LTD Income Plan group rules could mean a sudden ending of coverage, leaving you without income protection. This would force you to scramble to apply for new coverage, hoping your current health and income would warrant it.
Individual DI policies promise optional benefits important to CPAs. The AICPA group plan does not.
Many strong insurance companies offering individual Disability Income Insurance have begun to offer two additional options (for an extra fee) that suit CPAs:
-Student Loan Reimbursement Option: This optional rider, if the proposed insured becomes disabled and begins receiving the monthly benefits makes additional payments to a disabled insured’s student loan provider while the insured is out of work, covering all or part of the student loan payment due.
-Retirement Savings Option: This optional rider, in the event of disability, while the insured is receiving benefits, other monies are set aside to help the insured continue to save for retirement.
The AICPA group plan does not offer either of these two optional benefits in their “Disability Income Plan” group disability insurance offering.
Individual DI policies offer a much stronger definition of residual disability than the AICPA plan.
The AICPA LTD group plan offers the option of residual disability (called “partial disability”). This means if you are not totally disabled and can still work some of the time, the residual disability option pays you a portion of your monthly benefit to replace a % of lost income.
But the trigger of the AICPA plan is a loss of income, 20% or more, to receive the partial (residual) disability benefits. CPAs, especially CPAs who are business owners, may not suffer a loss of income for months if they cannot work due to a partial disability!
Many of the strong individual DI insurers we work with base their residual disability benefit payments not on income, but loss of time worked, or duties. This suits the way CPAs work, and benefits would be triggered.
Individual DI policies promise that costs cannot rise for any reason. AICPA group coverage does not.
When you apply for and accept an individual Disability Income Insurance policy, the insurer make the promise that the initial premium cost each month is set for life. For the coverage applied for the cost will not rise as you get older, or develop a health issue, or just because a year has passed and costs have moved up. The rate is the rate!
So rate-wise, you are always the age when you applied for Disability Insurance to the DI insurer.
The cost of AICPA group DI coverage can rise, in two ways. First, the rates go up as you age, in five year age bands, just like employer-sponsored group coverage. The older you are, the more you pay. Second, the insurer can raise the rates on a class-wide basis. (“class-wide” means for everyone in the group) At any time.
The importance of choosing the "own occupation" (or “your occupation”) definition of disability when choosing CPA / accountant-specific Disability Insurance coverage.
"Definition of disability" is very important when considering Disability Income Insurance. Most people purchase a policy with a definition that says the insurer will pay the benefit if they are disabled, but will stop paying the benefit when the person can go back to work in a job “they are suitable for because of education and prior experience.” This definition can be inadequate for someone who invested a great deal of time and money in their specialized occupation (accounting, then CPA).
The better “Own Occupation” or “Your Occupation” definition states the insurer will pay the benefit for as long as the person cannot work in the exact occupation they were previously working in. And, that if the disabled person cannot do just one of the main, material duties of their job, then the policy still considers them disabled, and continues to pay the benefit. This means if you cannot work in all capacities of your current practice, you are disabled according to the definition of the disability. The illustration goes on to state that the contract will consider your specialty (the profession of accounting) as your own occupation.
You can even choose a “pure own occupation” (also called “true own occupation”) definition of disability that adds to the above that you can even work in another occupation and still be considered disabled.
Wait…what? Yes, with this strongest definition of disability, the “pure” or “true,” if you are disabled and cannot work in the occupation you were engaged in and had Disability Income Insurance for, then you are receiving the policy’s benefits, even if you are working in another occupation. Here is an example with with one of our clients:
-an OB-GYN disabled with his back and unable to work in that occupation. His pure own occ definition policy pays benefits even as he has started teaching in medical school
-a disabled veterinarian who returned to school and became a CPA!
Note: The AICPA LTD Group plan does NOT offer the “pure” or “true” own occupation of disability as an option.
If you own your CPA practice you need to consider a “Business Overhead Expense” policy.
Disability Insurance companies also offer a secondary type of disability insurance specific to business owners called “Business Overhead Expense” or “BOE” insurance.
Business Overhead Expense insurance, if the insured becomes disabled, steps in and pays the business’s bills; lease or mortgage payment, staff salaries, insurance, utilities, etc.
Think of it as Disability Insurance that funds your business’s budget, just as DI funds your family budget.
Consider the Cost of Living Adjustment (COLA) benefit rider to keep pace with inflation.
When you design and purchase a Disability Income Insurance policy you choose a monthly benefit to receive if you are disabled. But what happens as costs rise?
The Cost of Living Adjustment (COLA) option helps you keep up. The rider states that while you are disabled and receiving benefits, your base monthly benefits will be increased once each year. These increase percentages vary with the different insurers. One very popular choice is 3% per year simple interest. There are also compound interest options.
You can buy individual Disability Insurance while still just starting your accounting practice.
Insurance companies that offer individual Disability Insurance offer special programs for young professionals, including CPAs.
Proving current income is difficult for a brand new business owner, but your need for Disability Insurance is ever present. These young professional programs allow you to purchase a Disability Insurance monthly benefit without having to prove a current income. Then you can add to the monthly benefit as your income increases over time.
