While most of us understand the need to insure our cars and homes, many do not consider insuring what pays for those things… our paychecks. It is crucial to understand the importance of properly insuring your paycheck with disability insurance. Here are answers to six of people’s most pressing disability insurance questions:
1. Where does disability insurance fit within my financial plan?
Disability insurance is there to protect your income, should you become ill or injured and unable to work. In essence, it protects your paycheck. Your financial plan needs to begin and end with income planning. Unless you first protect your income, there is no financial plan!
2. What about disability insurance through my work—isn’t that enough?
That’s called group disability insurance. With this particular coverage, you are just a tenant. You are not in control because you do not own the policy. It can be taken from you in an instant; your employer may give it up or the insurer may decide to stop insuring the group. You are at their mercy.
Plus, 70% of employers don’t offer long-term disability insurance at work, which means if you do have coverage, it’s probably short-term disability insurance, which would not help you meet your financial obligations if you were sick or injured for an extended period of time.
Also, keep in mind that group long-term disability insurance typically only covers your base salary, so bonuses, commissions, incentives, deferred compensation, stock options and pension contributions are generally not covered. In most claims scenarios, people are very disappointed with the adequacy of their group disability coverage.
3. How does disability insurance differ from long-term care insurance?
Simple. Disability Insurance pays you and long-term care insurance typically pays someone else who is providing the care service.
4. How does disability insurance differ from life insurance?
When it comes to income replacement and asset conservation, there is no difference. The difference between disability insurance and life insurance is you’re either above or below six feet of dirt. The main concept to think about is that the chances of becoming disabled are much greater than dying prematurely.
5. How much disability insurance should I have?
You should have as much disability insurance as possible. No less than 65% of your gross income is considered adequate. I’ve not met anyone who is receiving disability benefits that has said that their benefit is more than enough. Unfortunately, when you’re disabled, the truth is always the opposite; there is never enough money. That’s why supplemental disability insurance is often necessary to adequately protect a person’s income. You can get a working idea of how much you might need here.
6. Where can I get disability insurance?
A good financial advisor or insurance agent will always offer disability insurance, so that should be a clue when choosing an advisor. If you don’t have an agent or advisor, you can start your search here.
Facts:
Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.
Accidents are NOT usually the culprit. Back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences.