Estate Planning for the Life you are Living!

If you’re currently earning a comfortable income but have concerns about financial security in the event of illness or injury preventing you from working in the future, disability insurance offers a vital solution. However, it’s crucial to select a policy that aligns with your needs and maximizes your investment. This article outlines seven key considerations to bear in mind when procuring disability insurance.

Disability Insurance: Issues to consider 

The answers to these 7 questions can give you the best chance of finding a policy that is well-suited for your particular situation.

01 – What is disability insurance?

Disability insurance provides financial assistance if you’re unable to work due to illness or injury, offering a percentage of your income to cover essential expenses. Unlike health insurance, it doesn’t cover medical bills but replaces lost income to ensure you can meet basic financial obligations like bills and living expenses until you can return to work. To begin your search for disability insurance, it’s essential to determine your “minimum to thrive” number, outlining your basic financial needs. If you’re unsure how to calculate this figure, reach out to us for assistance, and we can provide guidance or connect you with resources and advisors who can help.

02 – Should I get disability coverage? 

If you are the breadwinner in your family and your income would stop if you become ill or injured and could not work, you should look into disability insurance. According to U.S. government’s statistics, one in four 20-year-olds become disabled before reaching retirement age. Statistics like this make it all the more important that you consider protecting yourself and your family with disability coverage.  

03 – What’s the difference between short and long-term disability insurance?

There are two main types of disability insurance: short-term and long-term. Short-term disability insurance typically lasts for 3 to 6 months, though it can extend up to a year or more. These policies usually provide coverage for about 60% to 80% of your monthly gross income, with premiums typically ranging from 1% to 3% of your annual income. One significant advantage of short-term policies is the quick payout, often within two weeks, which can be crucial in urgent situations.

On the other hand, long-term disability insurance offers benefits for several years or until your disability ends, even if it extends until your retirement. Most long-term policies cover 40% to 60% of your monthly gross income, although some policies offer up to 70% coverage. While long-term disability policies also cost 1% to 3% of your yearly income in premiums, they tend to offer better value over time considering the benefits provided.

However, it’s essential to note that payouts from a long-term policy may take up to 6 months to kick in. This delay may not be feasible if you require immediate financial assistance to cover living expenses. Therefore, we recommend using emergency savings equivalent to 6 months of expenses to address short-term financial needs and then obtaining a long-term policy to address more extended financial concerns.

04 – What does ‘portability’ mean?

If you purchase your disability insurance through your workplace, ask if you can keep that insurance if you leave the company. If your insurance is non-portable, your coverage will end when you leave the job. Having a portable policy means that you will be covered no matter where you work. 

Although many disability policies purchased through an employer are not portable, it’s definitely something you should look into. If portability is important to you, consider purchasing disability insurance on your own, rather than through your employer.

05 – What are the renewal options for disability policies?

A “guaranteed renewal” policy allows you to renew, without making any changes to your coverage, but your premium can fluctuate. A “non-cancelable” policy means your coverage and your premiums cannot be changed, assuming you pay your premiums on time. Also, be sure to find out if premiums are waived during a qualified disability.

Given these considerations, the best policies will be non-cancelable and guaranteed renewable. Obviously, such policies will cost more, so consider what’s best for you, and if you need help making your decision, we’re happy to recommend a trusted insurance agent and then talk through the options with you.

06 – How do cost of living benefits work?

Cost of living benefits are not included in most policies, but adding this rider is definitely something to consider. Cost of living benefits are designed to provide financial stability by offering an increasing benefit to keep pace with an increased cost of living, which is especially important right now, when we are experiencing unprecedented levels of inflation.

When choosing cost of living benefits, consider choosing policies that increase on a compounding basis. Compound interest is earned on the principal and the interest. This additional rider can help your benefits keep pace through inflation, even after your disability ends.

07 – Do I need a ‘future increase’ rider?

A future increase rider is another option to consider adding to your disability coverage. It’s worth looking into particularly if you think your income may increase significantly over time. With this rider, you are able to increase the monthly benefit of your policy, regardless of your health status. 

Without it, your policy will not change to protect your future income, and your benefits will pay out according to your income when you first obtained coverage. That said, many insurance companies will limit the total supplementary coverage that can be implemented each year with a future increase rider, so even if you have this option in place, the benefits might not fully reflect your future salary.

Get help choosing your coverage

When shopping for a policy, it’s best to work with an insurance agent who can survey many different companies to help you choose the right policy for your budget, age, health, and other factors. And remember, you must have the policy in place before something happens—if you’re already sick or injured, you can’t buy disability insurance to make up for lost income. 

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