A 45-year-old has a 40% chance of becoming disabled for three months or longer before the age of 65.
You don’t pay taxes on disability insurance benefits. This means that you can determine the coverage you need based on after-tax income you need to meet your financial obligations.
Most employer insurance packages include some disability insurance. However, they are generally for shorter-term periods of not being able to work. Check your insurance handbook or speak with your carrier to determine how much disability insurance you can count on.
Disability insurance is something you hope you never need. But if you face a debilitating accident or illness that prevents you from working, you’ll be glad you have this financial safeguard to replace your income.
For most of us, the biggest impact on our overall economic health is the income we generate from working. We feed and clothe ourselves and our families with that income. We pay for our housing and transportation. We save for education and retirement. In short, we depend on our incomes to sustain our lifestyle.
On the flip side, the biggest threat to our financial stability is an interruption in that flow of income. If we can’t work, we lose our ability to meet our financial obligations. Bills pile up. We can be forced to change our lifestyles completely. All in the midst of a disability that is likely placing emotional and mental stress on the whole family.
Disability insurance is designed to address the threat of lost income due to a disability that prohibits you from working.
Disability insurance requires a monthly payment (premium) that is based on the amount of income you would need to replace, the amount of time you would need that income, and the likelihood of a disability occurring that would keep you from working.
Disability insurance is not cheap. And because of that, many people ignore the risk to their financial stability and just hope it won’t happen. But is that short-term gain worth the risk?
Your ability to earn an income is sort of like having a money-printing machine. If you were in the market for a money-printing machine, you’d probably look for one that could provide the best results for you over the long term.
For example, let’s say you were comparing two models of money-printing machine. One model prints $100,000 a year, but has a 40% chance of breaking down and not printing anything. The other model only prints $98,000 a year, but is guaranteed to print that money consistently, year in and year out. For the modest decrease in money printed each year, the guaranteed model is definitely the smarter choice.
Disability insurance works in the same way. For a yearly premium, you protect your ability to generate the income you need until retirement age. Without it, the risk of disruptions to your income due to disability can cause financial repercussions that will last throughout your life – even if you do get back to work at your regular salary.
Don’t ignore the possibility of losing your ability to generate an income. While each individual needs to examine their own situation, you owe it to yourself to explore the costs and benefits of obtaining disability insurance to balance the risks in your financial plan.
For general insurance info, see this article.