How important is disability insurance?
Automobile and homeowner insurance protects you from financial loss if something happens to your property. Life insurance will protect your family against the permanent loss of income as a result of your death. But who helps you, if something happens to you?
The odds of becoming disabled are probably greater than you may think. For men between the ages of 30 and 50, the chance of incurring a disability before age 65, that will keep you from being able to work for at least 90 days, is about equal to the chance of dying. For women, it is at least twice that.
Typically, on-the-job type disability coverage is short term in nature. Social Security disability benefits kick in after six months; but only if you are permanently disabled and only if you can prove that you can no longer work in some type of activity of substantial nature.
Unless you have adequate reserves to cover the family's living costs for an extended period of time, strong thoughts should be given to having some type of disability income insurance. Here are some of the questions you should consider when shopping for a disability policy:
What is the definition of disability?
This can be defined in so many different ways and can vary tremendously with different policies. It can be defined as being unable to perform your customary occupation, or all the way to not being able to perform any occupation at all. Costs can be kept down by accepting reduced benefits when you can earn money from a new job based on similar education and training.
When will benefits begin?
The "elimination period" is the length of time you will wait from date of disability until the date your benefits begin. The most common period is 91 days.
How long will benefits be paid?
The "benefit period" is the term of the payout, which can be for a set period (e.g.,one year) or for life. Usually you don't need to go much beyond the date of your expected retirement, but this decision is based on assets accumulated, along with the assets consumed as a result of the disability.
How much will your benefits be?
Most insurers offer coverage of no more than 60 percent of gross earned income. This creates an incentive to return to work. As long as you pay the premiums and not your employer, your benefits will be tax-free. This can make the 60 percent amount more acceptable.
If you have any questions related to how you may benefit from disability insurance, please contact the office for additional guidance.
The information presented in this document is of a general nature only and should not be relied upon to replace professional advice. Before acting on this information, talk with a professional advisor as laws and regulations are constantly changing. Readers accept full responsibility; no document found here is a substitute for a consultation.