Informed: Disability Insurance
May is National Disability Awareness Month. My guess is you didn’t even know there was such a thing. To be honest, I didn’t either until a few weeks ago. It seems like everything is getting its own awareness month these days doesn’t it?
I thought this would be a good time to roll out a blog series called Informed, in which I will try to provide some clarity on a variety of financial planning concepts every now and then. I know, I know, it sounds fascinating and you can’t wait to come back!
What is Disability Insurance?
Disability insurance is one of the most misunderstood and often overlooked forms of insurance in the marketplace today. In its simplest form, it offers income replacement to an individual who is unable to work.
If you were to get sick or hurt for a period of time, disability insurance would replace a portion of your income. Benefits are generally taxable if you have a group policy through your employer and typically non-taxable if you own an individual policy
Who Needs It?
The Social Security Administration estimates in their December 31, 2007 fact sheet that seventy percent of the private sector workforce has no long-term disability insurance. A person’s ability to earn an income is usually their most important financial asset, so basically anyone who depends on earned income should probably consider this type of insurance.
How Much Do I Need?
That depends on a few things like how much income do you currently earn, how much are your fixed expenses each month and do you have any other disability insurance in place. Here’s a handy calculator that shows your potential need for insurance.
It Won’t Happent to Me
Consider these statistics:
• Someone who is 35 years old has a 50 percent chance of disability for 90 days or more before they turn 65.
• Most people in the U.S. are better prepared financially in case of death (usually with life insurance) than if they get disabled, even though the chances are at least three to five times greater (depending on age) that a disability will occur.
• Upwards of 375,000 Americans become totally disabled every year.
• Approximately one out of seven people who are between the ages 35–65 can expect to become disabled for five years or longer.
• Almost 30 percent of the people who are between the ages 35 and 65 will experience a disability that lasts at least 90 days during their working careers.
What Should I Do?
The first thing to do is check with your current employer to see if you are covered through work. Secondly, if you do have group coverage, find out if you can increase your coverage. And lastly, shop around to get a price on individual policies to see if it works into your budget and makes sense for you financially.
Real Life Example
I remember talking to my friend and former coworker Kent Eloe, who said he was so glad he bought disability insurance before he found out he had brain cancer. Many of us think, “it’ll never happen to me” and that might be true, however, the question that should be asked is “what if it does?”. See more of Kent’s amazing life story here.
I hope to take a deeper look at the spiritual consideration of insurance and financial planning in a later post. I do want to briefly mention that as Christians, our hope does not lie in any amount of insurance coverage or financial planning. Our hope lies in the Sovereign Creator of this world, our Father God who cares for and loves his children and promises to provide for their needs. We must be prudent in our planning, but ultimately we entrust our care to Him.