Most of us have insured our home, possessions, cars and our lives. However, have you insured something that might be even more important: your ability to consistently earn income? This may be the most important asset you have.
Consider the following: if you currently earn $50,000 a year and you’re 35 years old, from now until you’re 65 you’ll earn $1.5 million. That assumes your income never increases, which it almost certainly will.
Doesn’t that seem like it might be worth protecting? Is your house or car worth $1.5 million? Most of us don’t own any single object worth $1.5 million.
What Are the Chances of Actually Needing to Use Your Disability Insurance?
Disability insurance insures your ability to earn income. Many people hear the word "disability" and immediately think of an accident. But most long-term disabilities are the result of illness, such as heart disease or cancer. Every year, over 12% of adults in the United States have a long-term disability.
Not only that, but one out of seven employed residents of the United States will have a disability that lasts 5 years or longer before age 65. The odds of suffering a disability that lasts at least 3 months is over 50 percent. And the U.S. Department of Housing and Urban Development has estimated that 45 percent of foreclosures are due to disability.
What about social security? Social security does provide benefits, but qualifying is not always easy. The benefits provided are rather limited, even for the most frugal of people.
How to Get Disability Insurance
Large employers typically offer short-term and long-term disability insurance. This coverage is frequently affordable and will cover 50-60% of your salary. The total payout may also be capped.
If you prefer or need to go with an individual policy instead of through your employer, be aware that they can be quite expensive, but have far more flexibility to provide what you need. The cost of an individual policy can vary dramatically, but expect to annually pay 1%-3% of your salary to replace 60% of your salary.
Some factors that influence the premium include:
1. The monthly payout. Obviously, the more money you would receive in the event you suffer a disability, the more your policy will cost.
2. How "disability" is defined. Does it pay if you are unable to do your job? Or does it only pay if you are unable to do your job and any other job for which you’re qualified? What if you can work part of a day, but not the whole day? Be sure you know what you’re getting, and what you’re not getting.
3. How long is the waiting period before you start receiving your payments? The longer the waiting period, the less expensive the policy will be.
• This is a good reason to have that 4-6 month cash reserve you’re always hearing about. If you don’t currently have it set aside, get started today!
4. Your occupation. Some jobs are simply more hazardous than others. Everything else being equal, a construction worker should expect to pay more than an accountant.
5. Cost of living. Some policies cover cost of living increases. This can make a big difference, depending on the length of your disability.
6. Additional purchase option. Once you’re insured, this option would allow you to purchase additional coverage later on without having to submit to another physical.
Disability insurance is the insurance that everyone seems to forget about, especially those who are self-employed. But this may be the most important insurance you can purchase! Look into disability insurance today; your future and the future of your family may depend on it.
The information provided is for informational purposes only. Harris Advisors, a division of 360 Partners LLC, its affiliates, subsidiaries, employees, agents and/or representatives do not provide tax, investment, or legal advice. Please consult with your own tax, investment, or legal
advisor with any questions..