Do Not Underestimate the Need for Disability Insurance

Most of us rarely consider the fact that we could become disabled. Yet being unable to work could result from any number of circumstances. Cancer, heart disease, worsening medical conditions like diabetes, injuries caused by an accident, and behavioral health illnesses are just a few examples of common situations that can lead to significant time out of work.

Why you might need disability income insurance

Consider what might happen if you suffered an injury or illness and couldn’t work for days, months, or even years. If you’re single, do you have other means of support? If you’re married, you may be able to rely on your spouse for income, but you probably also have many financial obligations, such as supporting your children and paying your mortgage. Could you meet those obligations using only your spouse’s income? What if you’re self­employed or own a business? Can your business continue to provide you with needed income if you’re not able to actively participate?

If you work and earn a living, consider your need for disability insurance. But how much disability insurance should you have? The answer typically depends on three factors: how much income you’ll need if you become disabled, how much money you can afford to spend on premiums, and how much insurance you’ll be able to purchase under the insurance company’s guidelines. Here are some expenses you may face if you become disabled.

    • Medical expenses:​ You can expect your medical expenses to rise when you suffer a disability. Assuming that you have health insurance, you’ll probably have to satisfy a deductible as well as out­of­pocket costs like co­pays, which may increase your expenses immediately after your disability occurs. In addition, if you suffer a long­term disability and are forced to quit your job, your group medical insurance coverage may be terminated.
    • Living expenses:​ What if a disability prevents you from being able to drive, clean your home, mow the lawn, or cook for yourself and your family? Will you need to hire household help to take care of day­to­day activities that you can no longer do? Hiring help can be a substantial, unexpected expense when you become disabled.
    • Child­care expenses:​ If you have young children and both you and your spouse work, you know how expensive child care is. Can you afford it if you or your spouse should become disabled and unemployed? The disabled partner may be able to care for the children at home, but not if his or her disability is too limiting. On the other hand, if you currently stay at home with your children, you may be forced to return to work if your spouse is disabled, and you may have to contend with the unforeseen additional expense of child care.

Do you already have disability insurance?

You may already be covered by disability insurance through your employer. This may be short ­term coverage, long ­term coverage, or both. Short­ term coverage typically pays for a period of 13 to 26 weeks. Long­ term coverage pays a monthly benefit that begins after the short ­term period expires. If you have one type only, you may wish to consider adding a private policy for the type of coverage that your employer does not provide.

How much insurance should you buy?

Once you’ve decided that you need to buy more disability income insurance, you should aim to cover a significant portion of the income that you will lose if you become disabled. The insurance company determines the maximum amount of disability income insurance you can purchase based on your income, health, age, and the amount of other disability benefits to which you’re entitled. Most companies will sell you insurance that replaces 50% to 70% of your monthly pretax earnings (of course, you can opt to buy less than this amount).

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