Disability Insurance

 


Chronic pain, cancer treatment, severe depression�these are just a few of the virtually countless reasons you may not be able to show up to work for a significant period of time. Consider this statistic: A 20-year-old has a 30% chance of becoming disabled by the time he or she reaches retirement age. Needless to say, the financial consequences of a disability can be devastating. In 2001, more than one-fifth of bankruptcies in the United States occurred because the debtors (or their spouses) lost at least two weeks of income due to injury or illness.

While government programs such as Social Security provide disability benefits, the eligibility requirements are strict: Your disability must be expected to last for at least a year and the government must conclude that you are incapable of any gainful employment. Also, the benefits may fall well short of your lost income. A 40-year-old making $60,000 a year, for instance, can only expect about $1,700 a month from Social Security in the event of disability.

There is another way to guard against the worst-case scenario. Disability insurance can provide some financial security�and peace of mind�if you�re unable to provide it yourself.

What is disability insurance?
Disability insurance, also known as disability income insurance, replaces a portion of your income�typically between 50% and 70%�if you are no longer able to work due to sickness or injury. (No insurer will agree to replace all of your predisability income, the rationale being that you would have little incentive to return to work.) "Your ability to earn an income is likely to be your largest financial asset," "It's worth protecting."

When do you need disability insurance?
The short answer: right now. "You want to buy it when you don't need it at all." 

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Long-term disability insurance pays a monthly benefit to an insured individual who can no longer perform normal work duties. The definition of disability can vary from policy to policy. Disability plans generally have elimination periods of 30 days, 60 days, and 90 days. The shorter the elimination period (the waiting period until the insured receives his or her benefit), the higher the premium. Benefit Periods can be two years or five years and to age 65. The longer the benefit period, the higher the premium.

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