Team Financial Resources, Inc. knows the value of having one’s income protected. We have seen clients suddenly lose their ability to produce the income that their family depends upon. Although we insure our home against a fire that may never occur, or our car that may never get in a mishap, we often fail to provide protection against our most valuable asset - our ability to earn an income.
Why You Need Disability Insurance
In many respects, disability insurance is just as important to your family's future as life insurance. Both provide financial security when your family's most important asset - your income - is lost.
Statistically, however, you're as likely to be disabled for six months or longer as you are to die prematurely. Moreover, the long-term disability of a wage earner could have greater negative financial consequences for the family than if the wage earner were to pass away. With death, income stops, but so do the expenses of the deceased. If you are disabled, however, you and your family will have to cope with medical and other costs in addition to the lost income.
You could use your savings to cover these expenditures, but how much money do you have and how long would it last? You could try to borrow money, but could you get a loan if you're not working? Many people assume if they are disabled, government programs will take care of them. While such governmental programs are available, they often are inadequate. Most state maximum disability payments amount to $300 to $450 a week for only one year. Clearly, if you lose the ability to earn a living because of sickness or injury, your family's financial future may be in jeopardy. No one wants to think about becoming disabled, but the ramifications are undeniable.
Here's where disability insurance steps in. It helps protect against financial catastrophe, ensuring that your family will have enough money to meet its living expenses. Although the importance of disability insurance is obvious, the coverage remains a puzzle to many.
What Is Disability Insurance?
Most people think a disabling injury or illness is a remote possibility. The statistics tell another story, however. People in their early 30s are three times more likely to suffer a disability lasting three months or longer than they are to die. Nearly 33 percent of all people will suffer a serious disability between the ages of 35 and 65. The average disability will last more than five years, but for 30 percent of those disabled, it will persist for life.
These statistics show the importance of having adequate insurance protection. If you are like most people, your ability to earn a living is your most valuable asset. Disability insurance steps in if you lose that asset as a result of sickness or injury.
So take stock of your existing resources. Some cases of disability qualify for Social Security benefits, but many don't. Also, keep in mind that there is a five-month waiting period for Social Security disability benefits.
Find out whether your employer provides disability insurance protection for you through a group plan and, if so, determine the scope of this coverage. Most disability plans use a disability benefit level of 60 percent of gross salary. Many employers provide this type of coverage, and some also give employees the option to buy more insurance. Buying extra coverage through a group plan is almost always less expensive than buying an individual policy on your own.
Institutions that provide a group disability plan for their employees often add a monthly annuity premium benefit feature. This feature ensures that pension contributions continue even while you're receiving disability income benefits. This allows you to continue your retirement plan while disabled, a particularly valuable feature since the pension contributions will accumulate over decades.
Also, consider how much sick pay you are entitled to. Many employers continue wages for a specified time. In addition, workers' compensation benefits, though usually small, would probably kick in if you were disabled because of an injury or illness related to your job. Don't forget to look into veterans' disability benefits if you served in the armed forces.
Contact us to help you evaluate the proper protection needed for your family’s financial security.
(Above data is from SSA, Disability Benefits, Publication NO. 05-10029, 9/99 - Table 10. National Vital Statistics Report, Vol 47, NO.28, 12/13/99)