Disability Insurance

Have you thought about how you and your family could survive financially with no earned income?

In reality, disability insurance is equally important as (and in some cases, if more important than) life insurance. More people become disabled than die. That's because at any given age the odds of becoming disabled are much higher than dying. In fact, every year 12% of the adult U.S. population suffers a long-term disability. One out of every seven workers will suffer a five-year or longer period of disability before age 65, and if you're 35 now, your chances of experiencing a three-month or longer disability before you reach age 65 are 50%. If you're 45, the figure is 44%.

To complicate matters, fewer employers offer disability insurance than life insurance and it's much harder to qualify for individual disability coverage than for individual life insurance. The bottom line is that if you're working and you need your income to live, you need disability insurance. The only time you don't need it is when you have so much money that you could live comfortably for the rest of your life as well as meet other goals such as college, new home and retirement without help.

When you apply for disability insurance; the insurance company will usually tell you if you have too much money to qualify for coverage. That's because unlike life insurance, you can't buy all the disability insurance you may need. Usually you can get a maximum of 50% to 60% of your monthly earned income before taxes. (Unearned or investment income does not qualify because it continues even if you are disabled.) You cannot get more coverage than that because the insurance company does not want to deter you from returning to work.

Social Security's Disability Coverage

The good news is that if you are working you may already have some disability insurance, even if you haven't thought of it that way. It's called Social Security. Social Security does not just provide retirement income but disability income as well. The bad news is that it's very difficult to qualify for Social Security disability benefits. More than 80% of the applicants fail the first time around. The smart ones hire lawyers to help in the appeals process.

Disability Insurance can be purchased as short term (covering a short span of time 12 months to 5 years) or Long Term Disability which covers you until you reach age 65. You can save premium if you have a longer period of time before the Disability Insurances starts (60 days or 6 months) as an example.