An Ounce of Prevention - Disability Insurance

Most people have life insurance to protect their family against the financial impact of their unexpected death, and they insure their homes, cars, and other personal possessions against financial loss resulting from fire, theft, or damage. However, it's common for many individuals to overlook insuring one of the more important aspects of their financial life-- the ability to earn an income.

Have you ever contemplated how long the combined resources of you and your spouse might last if you were suddenly out of work due to an unexpected disability? If your combined resources provide less than 60 to 70 percent of your monthly expenses including taxes and savings, you may be in need of disability income insurance coverage. Whether you need an individually owned policy depends on the extent of your liquid assets, your spouse's income, and other sources of disability income (group coverage at work, workers' compensation, Social Security, and veterans and union benefits).

Depending on your income and the risk level of your occupation, the maximum coverage you can buy will generally replace 45 to 75 percent of your pre-disability earnings. The higher your income, the lower the percentage of replacement benefits. Typically, cost will depend on the risk level of your occupation, your age, your health, and the comprehensiveness of coverage.

To make certain the money you spend on disability income insurance is buying the proper amount and type of protection for you and your family, your contract should include the following:
• A favorable definition of total disability that is consistent with the risk of your occupation and, at a minimum, ensures the payment of benefits in the event you suffer a "loss of income."
• A non-cancelable clause that states the insurance company cannot cancel the policy or increase the premium until a certain age (as specified in the policy).

* Benefits that are payable until age 65 or for life.

• A waiting period consistent with your overall financial plan. The cost of disability income insurance declines the longer you wait before receiving benefits. You can purchase coverage that provides benefits on the 31st day of disability or up to two years later.

Now is the time to pay close attention to how much you should spend on disability income insurance. In most cases, it will cost you between 1-3% of your gross income to insure yourself against the risk of a disability. In addition, it is important to periodically review the particular details and provisions of the disability policy you are considering with a qualified insurance professional.

Disability Insurance