As a working individual, especially one with a family depending on your income, one of your greatest assets is your ability to earn a paycheck. This asset is even more important as you consider that you have about a one in five chance of becoming disabled between the ages of 35 and 65. In fact, you are more likely to become disabled for longer than three months than you are of dying during your employment years.
Imagine a scenario where you are unable to work for an extended period of time – months or even years. Would your family be able to afford basic necessities such as food clothing and shelter? What about items that aren’t strictly necessities, but many families consider critical, such as a child’s education or the ability to stay in your family home? And what about your long-term financial goals? Would you be able to continue to plan and save for the retirement you hope for?
Too frequently the answers to these questions is no. In fact, the biggest insurance gap we see for people in their working years is disability insurance. It may be that an employer doesn’t offer disability coverage, or it may be that workers just don’t think they need it. No matter the reason, this is a common hole in many financial plans.
What if you have coverage and think it is sufficient? Are you sure? Often employees who take advantage of their company benefits find that their disability insurance will cover only short term disabilities, or they find that the benefits are too low to offer any chance of maintaining their lifestyle after disability.
Understanding Disability Insurance
There are many things to consider when selecting and reviewing disability insurance coverage. Listed below are some policy terms you should become familiar with while exploring this need:
- Benefit level: The amount that a policy will pay should you qualify for benefits.
- Term of benefits: The length of time the policy will pay you during your disability. This could be a certain number of years or up to a certain age.
- Elimination period: The amount of time at the onset of disability before a policy will begin paying benefits.
- Own occupation or any occupation: Own occupation coverage will pay you benefits if you cannot work in your specific profession. Any occupation coverage will pay you only if you are unable to work in any field.
- Guaranteed renewable: As long as premiums are paid your policy cannot be cancelled. However, your premiums can increase.
- Non-cancellable: This type of policy ensures that your policy can never be cancelled or premiums increased.
- Income Taxation of benefits: Depending on who pays your premium (you or your employer) and whether the premiums are paid with pre-tax or after tax dollars will determine whether any benefits you receive will be included in your taxable income. Having to pay income tax on your benefits could significantly impact the amount you receive.
How to Buy Disability Insurance
There are a few ways to purchase disability insurance and each have their own advantages and disadvantages. You should discuss each option with a CERTIFIED FINANCIAL PLANNER™ to determine the best way to protect one of your most valuable assets.
- Buy it on your own. This can be the more expensive way to secure coverage, but it also gives you the most flexibility in determining your coverage and what works best for you and your family.
- Buy it through an employer. Group policies tend to be less expensive, but have fewer coverage options. In addition they may not be portable. Portability, the ability to keep the policy should you change jobs, is important for those who may need to change positions as it ensures consistent coverage and protects a worker’s insurability.
- Buy it through a professional organization. If you are a member of a professional organization, you might have the opportunity to purchase disability insurance through them and benefit from the group’s bargaining power. This can be a great resource for self-employed individuals or those who work for companies that do not offer disability insurance.
Are you earning an income that you or your family depends on? If the answer is yes, then you probably need disability income. We are CERTIFIED FINANCIAL PLANNER™ professionals serving Allen, McKinney, Plano and the surrounding areas, and can help you determine what policy specifics you should target to help protect your financial goals. Just use the contact form below to get in touch and we will be happy to help.