May is Disability Insurance Awareness Month
Disability insurance is arguably the most misunderstood of all major insurances. Here’s what you need to know.
Many people think of Disability insurance (also called Income Protection) as optional – when they think of it at all. But when it comes to protecting your assets, one of the most important things you can insure is your ability to earn an income. According to a recent survey,1 most families would not be adequately prepared if an illness or injury took away a breadwinner’s ability to earn a living.
Without an income, you could quickly exhaust your savings, funds for your children’s education, and your retirement accounts. And, a disability could continue for a long time. According to the Council for Disability Awareness, the average long term disability lasts over two and half years. In fact, over half of all personal bankruptcies and mortgage foreclosures are a consequence of a disability.2
Although life can change in an instant, you can take steps to ensure that you won’t need to sacrifice your assets to make ends meet.
Prepare for the Unexpected
While we can’t predict the unexpected, we can prepare for it. Long Term Disability insurance (LTD)—often called Income Protection—replaces a portion of your income when you’re too sick or injured to work. LTD benefits can be used to cover mortgage, utility and credit card payments, retirement contributions, student loans, childcare, and more, so you don’t need to tap into your hard-earned savings prematurely.
Even if you have Disability insurance through your employer, group coverage may not be enough. Most group-sponsored plans pay 60% of your salary, and benefits are usually subject to a monthly benefit cap. A supplemental individual plan can ensure you’re adequately covered.
So how much does LTD cost? LTD premiums are generally 1-3% of your annual income. As with life insurance, your age, health, occupation, and gender are the major variables affecting premiums. And there are ways to keep your costs down.
When evaluating your coverage options, the insurance company matters. Your insurer’s financial strength, ratings, and reputation are important LTD policy considerations. Your benefits can last a long time – to retirement age – so you’ll want to make sure the company will be there should you need them far into the future.
Even if you already have income protection in place, take some time this month to make sure your coverage is up to date with your career stage, income, lifestyle and other financial needs.
1 “The New American Milestones,” Life Happens, February 2020.
2 Council for Disability Awareness, https://disabilitycanhappen.org/financial-impact/.
3 “New American Milestones,” February 2020.