What if you suddenly became sick or hurt and lost your ability to earn a living? How would you pay your bills and daily expenses? According to the Insurance Information Institute (III, 2007), 43% of all people age 40 will have a long-term (lasting 90 days or more) disability event by age 65.
If you are employed by a large company, your employer may provide disability income insurance. However, if your company doesn’t provide disability benefits or if you’re self-employed, it’s up to you to make sure you’re covered. One option is self-insuring, or keeping a large savings account. However, even if you save 10% of your salary each year, one year of disability could decimate approximately ten years of savings! You may qualify to receive Social Security disability benefits; however, Social Security benefits will be, in many cases, less than the amount that would be required to pay your regular living expenses.
One way to protect yourself against the financial loss that would likely result from a disability is to purchase an individual disability income insurance policy. This type of policy can provide a monthly income to help pay your living expenses in the event of a disability.
Some Important Points
There are a few key considerations you should keep in mind when purchasing disability income insurance. First, try to purchase a policy that is non-cancelable and guaranteed renewable. With this type of policy, the company cannot raise your rates or change your policy as long as you pay your premiums on time. Second, the definition of disability in your policy should be carefully reviewed. The definition of total disability in a policy usually falls into one of two general categories. A more liberal definition tends to define total disability in terms of one’s “own” occupation, while a less liberal definition tends to require that the individual be unable to work in any occupation.
Third, when deciding upon a policy, you may also wish to consider a few additional features, which are often optional. One is residual benefits or partial disability, which, under specified circumstances, pays a portion of your benefits if you lose a certain percentage of income due to a disability. This option usually comes into play if you become disabled and are only able to earn a portion of your previous income. Another feature is a cost of living adjustment (COLA), which can increase your benefits once a year, after you become disabled. This feature was designed to help protect your benefits against the effects of inflation during a long-term disability. One feature that is especially important is the guaranteed insurability provision, which allows you to increase your monthly benefit even if you incur changes in health that would otherwise prevent you from obtaining additional disability coverage.
Finally, one of the most important things to do when choosing a disability income policy is to make sure to purchase a policy from a company that has solid financial ratings and offers a product with enough flexibility to meet your personal needs for quality, value, and affordability.
Note: Disability income policies are by application and subject to underwriting approval. Talk to your insurance professional for more information and to help you determine which policy is right for you.