Published on: 1/08/2024
The future is uncertain, so it's important to prepare as best as we can for what life may bring. If you’re looking for guidance and answers to common questions about disability insurance, this information can help you get started and make the best decision based on your specific needs.
10 Simple Tips
1. If you or others depend on your income — you need it.
If you have people who depend on your income - or if you depend on your income – you need disability insurance. One year without income could deplete your savings and have a significant impact on your finances.
2. Disability insurance replaces a portion of your income when you can't work.
If you were unable to work due to illness or injury, disability insurance can help to pay your most essential expenses, including food, utilities, school tuition, home and car payments.
3. Most long-term absences are due to illnesses, not accidents.
While many people think that disabilities are typically caused by accidents, the majority of long-term absences are actually due to illness.
4. You need it even if you're young and healthy.
Almost 1 in 4 of today's 20 year-olds will become disabled before reaching age 67. What's more, it's easier and less expensive to get disability insurance when you're young and healthy.
5. The risk of a disability during your working years may be greater than you think.
The risk of suffering a disabling illness or injury may be more likely than you realize. In fact, the average 20 year old is more likely to become disabled than to die before age 67. Disability insurance helps you maintain a steady stream of income when you can't work due to illness or injury.
6. A good rule of thumb is to protect 60-80% of your income.
You will need to meet your essential living expenses if you should become disabled. 72% of consumer expenditures cover essential needs like housing, food, transportation, health care and education.
7. Some disability insurance is better than no disability insurance.
When budgets are especially tight, it still makes sense to buy enough disability insurance to cover rent or mortgage payments and keep your family in their home should you become disabled. Disability insurance is more affordable than you may think. For example, a healthy 35 year-old male may obtain a $1,000 monthly benefit for an initial premium of approximately $25 per month.
8. Make sure you know how much disability insurance you get at work.
Check to see if disability coverage is made available to you through your employee benefits package. You might want to look carefully at coverage, however, since group benefits alone may not be enough due to potential benefit limitations and types of income covered.
9. There is no substitute for good advice.
Seek advice on how much insurance is right for your needs. Talk to a trained financial professional or perform research online. Whichever approach works best for you, taking action to protect you and your family with disability insurance is an important part of a strong financial plan.
10. The financial strength and reputation of the company you buy from matters.
When you purchase disability insurance, the company you buy from is making a long-term commitment to you. If you become disabled, there is a chance you will receive benefits for an extended period of time, so it makes sense to buy from a company with experience, financial strength and a solid reputation.
How Much Disability Insurance Do I Need?
When it comes to disability insurance, there’s no such thing as a one-size-fits-all policy. Everyone’s circumstances are different, so it’s good to take the time to consider what’s right for you.
How do I calculate the amount of disability insurance I need?
You need to figure out your expenses, your income, and whether you have coverage now. Follow the steps below to get started!
Step One: Calculate your essential monthly expenses. Consider:
- Monthly housing (mortgage, rent, insurance, taxes)
- Utilities (telephone, electricity, gas, oil, cable TV, internet)
- Food (groceries, dining out, morning coffee)
- Transportation (car payments, gasoline, insurance)
- Education (tuition, books, supplies)Health care (out-of-pocket costs, insurance premiums)
- Debt payments (credit cards, other debt)
- Other (dependent care, life insurance premiums)
Step Two: Take a look at your current income. Consider:
- Your annual salary
- Additional annual compensation (bonus or commissions)
- Total gross annual income (the amount you earn before taxes)
- Estimated after-tax monthly income
Step 3: Think about whether you have any existing coverage now. Consider:
- Do you have an existing individual disability policy? How much is the monthly benefit of this coverage?
- Do you already have a group long-term disability insurance policy through your employer? How much is the monthly after-tax benefit from this coverage?es!
Step Four: Do the math.
Once you’ve calculated the total amounts in steps 1, 2, and 3, you can use these numbers to figure out the appropriate amount for you, knowing that generally, it’s recommended that disability insurance cover 60-70% of your total earnings.
You’ll need to adjust how much you need accordingly—for example, if your expenses are very high, or you don’t have any existing coverage, the amount you need will be higher than someone who already has group disability insurance coverage through their employer.
What’s Next
It’s always a good idea to speak to a insurance expert, but if you start by understanding your current needs, you’ve taken the first important step to protect yourself and your loved ones!
