“Your ability to earn an income is your most valuable financial asset—yet it’s the one most people forget to protect.”
– Kyle J Christensen
By Kyle J Christensen, Founder, Principles-Based Planner, Unique Advantage
Unique Advantage Monthly Client Email – May 2025
This 7 minute read will open your eyes to the most overlooked move in financial planning: protecting your income.
Most people are working for money, not because they simply want to, but because they need to in order to pay for their living expenses (lifestyle, debts, etc). Until people receive sufficient income from investments assets, pensions, or social welfare programs (i.e. Social Security Retirement) to meet their needs, they rely on their ability to go to work and earn income.
Oftentimes people strive to gain specialized skill or knowledge early in their adult life, through some form of education (tech or college), in order to receive higher wages throughout their lifetimes. In the case of college education, it can be an investment of two to fourteen years, post-high school graduation. Additionally, there is a significant correlated investment of money to pay for that education. The average cost of college, per student, per year in the United States, is $38,270. When we consider the total cost of a bachelor’s degree, including the interest on loans, and loss of income during the timeframe, the cost exceeds $500,000 per student on average.
The average income of a college graduate in the United States is $67,849/yr. For those who specialize in medicine, and earn a post-graduate degree (and further specialize), the average income is as high as $558,000/yr (i.e. Orthopedic Surgeon). The education, training, and experience of a normal college graduate in the United States is worth $2,985,356, assuming the person graduates at age 23 and works to Social Security Normal Retirement Age (67). This calculation does not include increases in wages over time. An orthopedic surgeon, assuming all of his/her education and training is complete by age 32 and he/she works to age 67, will earn over $19,530,000 (again, without considering increases in income over the timeframe).
When we buy a house we are required to also buy homeowners insurance for that house (the lender requires it). However, even if buying homeowners insurance was not required, I believe most people would intuitively choose to purchase homeowners insurance on their house. Why? Because a house is a very expensive thing to own. Almost no other thing will cost more than a house in our lives (besides taxes and healthcare). When people pay off their house, and they are mortgage-free, they generally choose to keep full-replacement cost homeowners insurance on their house and would not seriously consider otherwise.
Comparing the value of the average home in the United States (currently $361,263) versus the value of the average income a college graduate will earn over a career ($2,985,356), a person’s ability to earn income is generally more than eight times greater! A person’s most valuable financial asset is their ability to earn an income. So, why then is it that most people would never consider going without homeowners insurance on their house, but they consistently ignore the importance of insuring their earning ability through disability insurance?
I believe there are a few important reasons disability insurance is so ignored. First, it’s not required by any third party, as homeowners insurance by lenders or auto insurance is by state governments.
Second, I think most people have very little education about disability insurance, where to get it and what their options are. Third, I believe most people don’t think they will become disabled, although the chances of a long-term disability are much greater than the chances of serious damage to a house by fire. The chances of a long-term disability = 25% for American adults over the age of 20. The chances of serious damage due to a fire (which is the most common cause of serious damage to a house and the main reason people have homeowners insurance) are only 2.4 tenths of a percent (358,500 out of 147 million homes in the United States last year experienced structural damage from fires).
The most common way that people obtain disability insurance is through their employer. They go to work full-time for an employer and receive group benefits. Among the group benefits offered is sometimes group disability insurance. Group disability insurance, for the most part, is not great, at least if you look beyond the premium amount. It can’t be great! Why? Because when a person gets hired full-time for a job and qualifies for benefits, including disability insurance benefits, they do not have to prove their insurability. In other words, they might be morbidly obese, diabetic, have heart disease or any other number of medical conditions. The insurance company providing the group disability plan has no idea about the health condition of the employees they are insuring. And because disability insurers aren’t in the business of simply giving away money, they protect themselves by offering pretty terrible quality coverage on group plans. In other words, they rarely have to pay out benefits, not because people don’t become disabled, but because their policies are designed in such a way to protect the insurance company from having to pay out benefits except for under the most severe circumstances.
Quality matters, especially when it comes to insuring your most valuable financial asset, your ability to earn income. We’re talking about insuring an asset that is worth anywhere from $2.9 million to over $19 million in some cases.
What about the cost? It’s true that a quality disability insurance policy is going to have a significantly higher premium than a disability policy that rarely pays benefits. And any disability policy is going to require more premium than no disability policy. According to statistics, 51 million working adults have no disability insurance at all. But what actually costs more, insuring or not insuring? What is the cost of ignoring insurance on your most valuable financial asset?
What would be an appropriate premium for a quality disability insurance policy? Let’s look at homeowners insurance. For most Americans, if you have a $500,000 house (cost to rebuild), your insurance is probably in the range of $1,200 to $3,000 per year, depending on where you live in America. That means that the cost per thousand dollars of potential benefit is $2.40-$6.00 per thousand dollars of benefit. The premium for homeowners insurance also increases every year.
By comparison, let’s say you are a 35-yr old and qualify for a disability insurance monthly benefit of $10,000 ($120,000 per year benefit). The premium for this policy, depending on your occupation, would be somewhere around $7,000 to $10,000 per year (depending on the carrier). Now, before we get too excited/angry, let’s be fair in our comparison between the premium for homeowners insurance and disability insurance. The potential benefit of the disability policy, without considering a cost-of-living adjustment to the benefit, would be $3,840,000 ($120,000 x 32 years). The cost per thousand dollars of disability insurance benefit, in this example, would be $2.60 per thousand on the high end, and $1.82 on the low end. Also, keep in mind that individually-owned disability insurance is level premium for the life of the policy. So, at most disability insurance is “as expensive” as homeowners insurance. But when you consider that the chances of a long-term disability are many times greater than your chances of fire damage to your house, you then might consider the disability insurance to be much less expensive.
How do we find or identify a quality disability insurance policy? Most of us have heard the phrase “the devil is in the details.” This means that it’s the details, or “the fine print” that matters. This is certainly true with disability insurance. I won’t go into every detail of disability insurance in this article. If you want to learn much more about it, on your own, there’s a great book titled Disability Insurance for Physicians: A No-Nonsense Guide to Protecting Your Most Important Asset by my friend, Billy Gwaltney, whom I consider to be one of the most competent disability insurance agents in the country (there are a handful that I would put in this category, not many). Don’t let the title throw you off if you aren’t a physician. Almost everything he talks about in the book applies to disability insurance in general and will make you a much smarter purchaser of the product.
Disability insurance is only good protection if it pays. The best policies pay the most often and the worst policies pay the least often. The devil is in the details.
Let’s get into some of the most important details. First and foremost, what does it mean to be disabled? One might think that all insurance companies and all disability policies define Total Disability the same, but one would be wrong. The very best definition will say that you are disabled if you cannot perform “the material and substantial duties of your own occupation” and will also include any specialty within your occupation. A worse definition, and much more common (especially on group disability policies) says that you are only disabled if you “cannot perform the material and substantial duties of your own occupation or any other reasonable occupation for which you would be suited based on your training, education, and experience.”
We want a benefit that increases over time, during a disability. This is called a Cost-of-Living Adjustment (COLA). If you became disabled and started receiving a benefit of $10,000 per month today, what would that benefit feel like five years down the road, or twenty years down the road? How much of the purchasing power of $10,000 will be eroded over time? Inflation will make a massive negative impact over a period of 5+ years. In fact, it can have a massive impact over one year (7% in 2021 alone). We want our benefit to increase with inflation as much as possible. The very best disability insurance plans will have a COLA Rider that increases the benefit by as much as 6% per year, based on inflation indexes.
Not all disabilities last forever. Many people recover and become healthy again. If their disability policy doesn’t have a Residual Benefit Rider, it will stop paying benefits as soon as the person isn’t disabled. And just because someone returns to good health, it doesn’t mean their income suddenly returns to what it was before the disability began. It could take years for a person’s income to be fully restored. A Residual Benefit Rider will continue to pay benefits on the policy as long as the insured has a 15% or greater (with the best policies) income loss as compared to their pre-disability earnings.
There are many other “details” that should be considered when choosing the best disability insurance plan for you. The major purpose of this article is to emphasize the importance of obtaining quality protection on your most valuable financial asset, which is your ability to earn an income, based on your investment in your education, training, and experience. Again, no one would seriously consider not having homeowners insurance on their house, yet most people go about their days without protecting something significantly more valuable. Don’t wait because you don’t think you’re going to become disabled. Any one of us could become disabled at any time, due to sickness or injury. We are all vulnerable and the chances of it happening are much greater than people usually think.
If you are working because you need the income you are earning, you should have disability insurance.
Please reach out to a Principles-Based Planner® with Unique Advantage to discuss your options.
Sincerely,
Kyle J. Christensen
P. S.
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