You’ve insured your home and personal property, your vehicles and your life, but are you overlooking your most substantial asset – your ability to earn income?
According to the Centers for Disease Control and Prevention, one of every five adults in the U.S., or 53 million individuals, lives with a disability. Say “disability” and many people visualize impairment from an accident. But according to the Council for Disability Awareness, the most common causes for new disability claims are musculoskeletal/connective tissue disorders (28.5 percent), cancer (14.6 percent), injuries and poisoning (10.6 percent), mental disorders (8.9 percent) and cardiovascular/circulator disorders (8.2 percent).[i]
Disability insurance protects your ability to earn income. Europeans and Australians may have the right idea in calling disability insurance “income insurance.” On any given day, your chances of becoming disabled are much higher than of dying. And if you become disabled, you continue to require living expenses like food, clothing and shelter, not to mention medical care – with no income to pay for them. According to the Social Security Disability Resource Center, half of all bankruptcies are due to medical reasons, and 46 percent of home foreclosures are caused by a disability.[ii]
Social Security provides disability benefits, but it can be difficult to qualify, and the limited benefits make it difficult to support even the most frugal standard of living. Worker’s compensation may also be a source, but only if your disability results from a workplace condition or accident. Don’t count on either Social Security or worker’s compensation to provide adequate income replacement if you can’t work.
Many employers today offer group short-term disability (some states even require it) and long-term disability insurance. Group coverage is usually fairly affordable and easy to get but doesn’t offer much flexibility and pays only a percentage of your salary, usually 50 to 60 percent. It may also have a monthly or annual cap well below your typical annual earnings.
Some professional associations also offer group coverage. Like employer group policies, the coverage may be affordable and easy to get, but it may not provide the amount or extent of coverage that you need. Individual policies may cost more, but you have more flexibility in structuring the coverage to suit your needs. Some options will come at a premium but might well be worth it.
Pricing for individual coverage will vary depending on
- Amount of monthly benefit: Generally, the higher the benefit, the higher the premium.
- Definition of disability: Benefits can apply for inability to perform in your specific occupation or in any occupation for which you are qualified. Coverage may also specify inability to work at all or inability to work a full day.
- How long you can go before tapping benefits: The longer the waiting period, the lower the premium. All the more reason to have that emergency cash reserve equal to four to six months’ salary.
- Length of benefit period: The insurance carrier may put limits on the length of coverage, or you may choose a shorter period to reduce premium costs.
- Your occupation: The inherent hazards of your occupation, along with the level of skills required for your job, will influence premiums. Expect to pay more for highly skilled professions like a doctor or lawyer and for more hazardous jobs like construction.
- Cost of living adjustment: You’ll pay extra for this feature, but if you suffer a permanent disability, it will help your benefits keep pace with your living expenses.
- Additional purchase option: Another premium feature, this lets you buy additional coverage in the future without having another physical.
Choosing appropriate disability insurance requires careful consideration of not only your current situation but your future circumstances – and the worst-case circumstances at that. If you depend on your current income to live, you need to ensure it goes on flowing even if you can’t go on working.
[i]“Disability Statistics,” http://www.disabilitycanhappen.org/docs/disability_stats.pdf
Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory Services offered through BEAM Asset Management, LLC. Susan Sommer, CFS, CFP® Representative. Securities America, Inc., BEAM Asset Management LLC and Sommer Investments, L.L.C. are separate entities.
“Written by Securities America for distribution by Susan Sommer.”