Disability Insurance Protects Future Pay

Everyone knows they will die one day, so many - perhaps, most - people buy life insurance to protect their families’ finances. But what if you are totally disabled by injury or illness and cannot work?

Although death is certain, it’s also very possible you will suffer a disability during your working life. Statistics indicate there’s better than a 50 percent chance that, before age 65, a 30-year-old will incur a disability severe enough to prevent working for a while.

Have you thought about disability insurance?

For older people, their most valuable asset may be their retirement plans, or their investments, or their homes. For younger people, however, their most valuable asset is usually their ability to earn a living - and this is what disability insurance protects.

According to the Georgia Society of Certified Public Accountants, if you’re 35 years old, earn $50,000 a year and plan to work until you’re 65, your future earning power is $1.5 million - and that’s without factoring in raises or bonuses.

The CPAs recommend the best way to protect this earning power is disability insurance, which replaces a portion of your income if you are unable to work because of injury or illness.

The most important thing to know about disability insurance is the policy’s definition of “total disability.” The definition is crucial because it determines if benefits are paid and for how long.

Total disability usually is defined in one of two ways:

The first method, used mainly by professionals such as dentists, provides that you are totally disabled if you cannot perform your specific previous occupation.

The second way is if you are unable to perform any occupation for which you are “reasonably” qualified. This definition would apply to most people.

Beyond definition of disability, there are several other factors to consider, according to the CPAs:

Determine how much disability insurance you need by figuring the monthly amount you would need to pay bills and expenses if you couldn’t work for an extended period.

Subtract work-related expenses, such as commuting costs, but add in money for increased at-home costs, such as performing chores you no longer can do.

Determine how much money you will receive from other sources. This might include your company’s sick-leave pay, or worker’s compensation insurance, or Social Security disability benefits. The difference between these possible sources and your anticipated expenses is the amount of disability insurance you need to buy.

When considering individual policies, look at the amount of monthly payment to you and the benefit period that payments are made. Most insurers - to encourage people to return to work as soon as they can - limit benefits from all sources to 60 percent to 70 percent of predisability income. Benefit periods range from as little as one year to age 65, which is the most common period.

Be sure of the waiting period before benefits are paid after a total disability occurs. While 90 days is the norm, it can be longer.

Look for a policy that cannot be canceled unless you fail to pay premiums, for a policy that gives you the right to buy more coverage at a later date, and for increases in benefits that track inflation.