Your overall financial
strategy should probably include a disability insurance policy. These
policies give you an income if you become disabled and are unable to work.
They ensure your earning power. Most disabilities arise from a medical
condition. Sometimes, they are associated with aging, but often the medical
problem is caused by an accident or some other unforeseen problem. It
makes sense to be protected.
How much do you
You should have enough to enable you to have a decent lifestyle if you
could not work. You should determine how much you are currently spending
and what it would take to just get by. You will probably want to be insured
for an amount between those two levels. You can also take into account
any other sources of potential income, like investments. Policies are
offered on a "dollars per month" basis and you usually can not insure
yourself for more than you are currently earning. And of course, the larger
the payment you would receive, the larger the premium.
Proceeds from a disability
policy are generally tax free if you pay the premiums. However, if your
employer provides coverage, you will have to pay tax on them and may want
a higher level to cover the taxes.
Definition of disability - You should
examine the policy's definition of disability. Some policies ("own
occupation") provide benefits if you cannot perform the work you usually
do while others provide benefits only if you cannot perform a job that
you are reasonably trained to perform. "Own occupation" policies are usually
more expensive and may not be worth the extra premiums if there are other
jobs you could perform easily that would provide a similar level of income
and that you would find rewarding.
renewable or non-cancelable - These words are important. They
both mean that you cannot be dropped because of poor health. However,
guaranteed renewable usually does not mean the insurance company cannot
raise its rates. Make sure to read the terms of the policy carefully.
period - This represents the time you must wait after you are
disabled and before you can start getting benefits. Many policies offer
different waiting periods from 30 days to a year. The shorter the wait,
the higher the premium. If you have other assets you could use for living
expenses for a period, you may want to consider the longer waiting period
with the lower premium.
company financial status - Be sure to check out the insurer.
While there may be some form of state insurance fund protection, if your
insurance company has financial difficulties, it may create some hardships
for you. You can often find insurance ratings at your library or on the
Internet. You can also ask the insurance agent for a report from a ratings
Most large companies offer disability insurance as part of their benefits
package. If you work for a smaller company or are self-employed, you may
need to find your own. You may also wish to investigate whether any professional
organization you belong to offers these types of policies.
Having disability insurance is almost a necessity, especially for younger
people, for those without many other assets and for those with families
that are dependent on a breadwinner's income. The good news is that disability
insurance is readily available from many sources.
Determine how much
and what kind you need. Check your employer's benefits program for availability.
Make sure you have the protection you need.