Wells Fargo Advisors LGBT Insight: Considering Disability Insurance

David Helverson, Vice President Investment Officer, who holds the Accredited Domestic Partnership Advisor Designation, with Wells Fargo Advisors, LLC in Chicago, seeks to address the unique financial challenges faced by domestic partners. This is the eighth article in a continuing series.

As a result of the recent Supreme Court decision to strike down the Defense of Marriage Act, federal-agency rules, laws and benefits are evolving rapidly and significantly for same-gender couples. In an article published shortly before the Court ruling, I discussed DOMA’s limits to same-gender spousal benefits; since then, the Social Security Administration has issued the following statement on its official website: “Social Security is now processing some retirement spouse claims for same-gender couples and paying benefits where they are due. In coming weeks and months, we will work with the Department of Justice to develop and implement additional policy and processing instructions. If you believe you may be eligible for Social Security benefits, we encourage you to apply now to protect you against theloss of any potential benefits. We will process your claims as soon as additional instructions become finalized.” While just short of full recognition, it’s possible that same-gender couples may eventually receive full federal retirement benefits.

As encouraging as these developments are, same-gender couples, like opposite-gender couples, still face the possibility of financial loss due to disability. In some situations, the need for income replacement and dependent care may in fact be higher for same-gender couples if their biological families have become emotionally estranged or have disowned them. Extra income may be needed to purchase assisted-living and home health services that would, in more supportive families, be provided free of charge. The disabled’s partner may need to contract for such services if the partner, remaining employed, constitutes the sole source of income. In cases where the disabled was the sole source of income, then disability and long-term-care insurance are even more essential to financial stability and health.

Because most disability policies have a “waiting period” before the disabled can qualify for benefits, I often speak to my clients about every household maintaining an emergency fund of liquid savings and cash equal to three months to six months of fixed and variable household expenses. Though this fund may be combined with other short-term investments and savings accounts, I encourage clients to view it as separate and distinct from additional funds set aside for unplanned large expenses such as home or vehicle repairs. Whenever money is withdrawn from such funds, it is important to think about replacing that money as quickly as possible to cover future emergencies.

If a partner is unable to earn an income for more than a few months, then a disability-insurance policy may help cover expenses and care. While Social Security may provide disability benefits, many people may feel these benefits are insufficient to meet all or even a good portion of monthly expenses. Social Security also has a very strict definition of disability and a waiting period of five months. At best, Social Security disability benefits may be considered a supplement to a policy with a more liberal definition of disability and a shorter waiting period.

Often, the only disability insurance many people have is a policy obtained through their employer. The terms, features, benefits and nuances of disability-insurance policies can be complex and arcane, more so than our discussion here will allow. But the employee should review the employer plan carefully to make sure it provides appropriate coverage. Moreover, because these policies are employment based, a nonworking spouse will necessarily have to seek coverage on his or her own. As always, when developing one’s own financial and investment plan, it’s good to have a thorough and frank conversation with a trusted and experienced financial professional. It is a good idea for disability insurance to be a part of your larger discussions.

Wells Fargo Advisors is not a tax or legal advisor. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and separate nonbank affiliate of Wells Fargo & Company, No. 25 in the 2013 DiversityInc Top 50.

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