You insure your home, your car, your health, and maybe even your phone, but have you considered insuring your income?
Are you aware of disability insurance (or income protection insurance?)
In a single year, more than 60% of families that file for bankruptcy will do so because of health care costs and the loss of a paycheck. Sure, the cost of health care is high, but it is also true that while on disability you are not working and unable to bring in a paycheck! A long-term disability event could last a year. Think about your annual salary. Now think of it completely disappearing overnight: current figures show that some 25% of working people out on a disability claim will be out of work for 12 months!
Maybe you’re different than the rest of us. Maybe you have six months’ worth of savings to cushion that loss of income, but if the illness or accident keeps you out of work longer, or you do not have six months of savings, then what? Perhaps now would be a good time to speak about disability income protection?
Some highlights to consider about disability claims:
- 9 of the top 10 reasons for disability claims are sickness, not accidents.
- States Disability plans tend to “cap” benefits at 50% of your average salary, with the average monthly payout just around $500.
- State benefits last for only 26 weeks (6 months), on average.
So, what can you do? Your employer may offer a benefit, but as of 2020, only 41% of employers offer a plan. And remember, if the company pays the premium, the benefit to you is taxable (but something is better than nothing, right?)
If there is a plan at work and you pay for it, that may provide you the tax-free income you need while out on claim. Before you sign up for the coverage, find out what the benefit would be to you to determine if it makes financial sense. Again, something you should check out now.
If your company does not offer a disability benefit, then it makes sense to speak with a professional now, review your situation, and determine a strategy for how to deal with a disability event before something happens.
Most importantly: if you are living paycheck to paycheck, or close to it, after the event is not the time to think about your options.
You should also begin to think about how much coverage you need. Do not assume you need the max you can get as you may find yourself unable to afford the coverage, ultimately abandoning it. Look at a typical month’s expenses, consider your monthly obligations (bills), and use that as your starting point. Cover the rent, cover the mortgage, cover the important things in YOUR life and start the planning process from there.
So now you’re thinking this all makes sense, but you don’t know a lot of details about disability insurance. Luckily for you, there is a wealth of information available online and through a number of resources. And insurance carriers have been working to make the process easier for you once you move ahead with disability insurance. They have been raising monthly benefits amounts, reducing the number of financial documents required to prove your income, and more.
If there were ever a time to seriously consider disability insurance, that time would be now. Just remember these three things:
- Some protection is better than no protection.
- Income tax free is always better.
- You may never need it, but why find out the hard way?
Final thought: a disability event now could impact your financial future, well into your retirement. To use a car analogy, if the “check engine light” were flashing you would act promptly; is protecting your income and financial future as equally important?