Most individuals, recognizing the risk of premature death, have life insurance to help provide financial protection for their survivors. Similarly, most people insure their homes, cars, and other property against the risk of loss resulting from a broad range of perils. Many also have liability insurance to protect against the risk of financial responsibility for damage to other persons as a result of negligence.
However, for most people who depend on current earnings, future earnings capacity may be their most valuable asset and the one least likely to be protected by insurance.
If the combined resources of you and your spouse would provide less than 60% to 70% of your monthly expenses, including taxes and savings, in the event of a disability, you may require additional disability income insurance protection. Whether you need an individually owned policy depends, in part, on the extent of your liquid assets, your other family income, and all other sources of disability income such as group disability coverage at work and disability income provided through workers compensation, Social Security, and veterans benefits.
Depending on your income and the risk level of your occupation, you would generally need coverage that would replace about 45% to 85% of your pre-disability earnings. Generally, the higher your income, the lower the percentage of needed replacement benefits. Typically, the cost of coverage would depend on a range of factors, including occupation, age, health, and the comprehensiveness of coverage.
For most people, a definition of total disability that specifies: 1) the inability to perform the duties of your regular occupation and not working in any occupation for a period time; followed by 2) the inability to perform the duties of any occupation for which you are reasonably suited by education, training, or experience may generally be appropriate.
To help confirm that the money you spend on disability income insurance is buying an appropriate amount and type of protection, you should have coverage with:
- A financially solid insurer who has a long-term commitment to provide disability income insurance;
- Guaranteed renewability at a guaranteed price until at least age 65, if needed, since contracts without this feature may be less expensive initially, but might leave you exposed later to unexpected premium increases;
- Benefits only while you need them, generally to age 65, since the coverage will be more expensive for longer maximum benefit periods;
- A waiting period of perhaps 90 days after becoming disabled, with reliance on other resources, such as short-term disability benefits, instead of beginning benefits immediately, since coverage with a longer waiting period is less expensive; and
- Other features, such as guarantees of physical insurability to cover future increases in earned income, partial loss-of-earnings benefits, coordination with social insurance benefits, and cost-of-living adjustment benefits that can be used to achieve your optimum balance between cost and benefits.
Now is the time to think about how best to meet your need for protection of this most valuable asset—your ability to earn a living. Of course, it is always advisable to review the details of any proposed coverage with your insurance professional.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual disability product. To determine which products(s) may be appropriate for you, consult your financial professional prior to purchasing.
This article was prepared by Liberty Publishing, Inc.
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