Disability insurance is one area of financial planning that is typically overlooked and ignored. We don’t hesitate to insure our physical assets like our home, cars, jewelry, and even our pets, but we forget to insure our most valuable asset – our ability to earn income! In households with one income-earner, an illness or injury could have especially devastating effects on the family lifestyle if the earner is not properly insured.
What’s the Risk?
Disabilities are more common than you might think, and they are on the rise. According to the Council for Disability Awareness, more than 1 out of 4 of today’s 20-year-olds will become disabled before they retire. In 2013, more than 37 million Americans were classified as being disabled (about 12 percent of the population). More than 50 percent of those disabled Americans were in their working years (ages 18-64). Becoming disabled can put a significant strain on the family income. If the breadwinner in your household was unable to work, how would you pay your bills?
Doesn’t my Employer Cover Disability Insurance?
Many employers do offer disability insurance to their employees, but this type of coverage is not required. Make sure you know how much is offered through your employer and if you can purchase additional coverage if needed. You can also purchase coverage outside of your employer through an insurance broker. Work with your financial planner to determine if your current insurance coverage would be enough to support your family’s bills and ongoing needs. If not, you should investigate getting more coverage.
What Else Should I Consider?
Most disability policies have a waiting period of 30, 60, 90, or 180 days. Do you have enough in cash reserves or your emergency fund to meet your obligations during this time frame? If your employer currently pays the premiums for your disability coverage, any benefits you receive will be taxable to you upon receipt – make sure you consider this in your calculations. Also, think about your long term plans. For example, if you collect disability, you are no longer eligible to contribute to your company’s 401(k) plan or receive a match. If your retirement plan depends on those funds, you’ll want to make sure you are saving that same amount in a different account during the disability period so as not to jeopardize your future financial stability.
We often view our home and cars as essential to everyday life, but where would they stand if we lost our ability to make income? Prioritize disability insurance and make sure it is a part of your overall financial plan and risk management program.