How to protect your most important asset with disability insurance
Key takeaways
- Disability, or being unable to work due to illness, is more likely than death during your working life, so make sure you’re protected.
- If you rely on regular job income, you need to have disability coverage to provide protection in the event that you cannot work for an extended period of time.
- Check what disability coverage you get from your employer.
- If you need help, take advice to help you determine coverage that’s appropriate for you - this may change over time.
Here are some considerations that may help you with your decisions.
1. If you rely on your regular job income, you need to have disability coverage.
Your need is even more important if you’re married, or have children or other dependents, because they are likely to depend on your earnings and they will be impacted if you can't work.
The need for disability insurance may decrease once you accumulate enough retirement savings to last if a disability forced you into early retirement. If you have children or other dependents, the need for disability insurance may also decrease once they no longer require your financial support as they leave home and get their own jobs.
Disability is more likely than death during your working life
Disability insurance is one of the biggest gaps in most people’s financial plan. You are more likely to become disabled (unable to work for an extended period of time) in your working life than you are to die. This is true even if you don’t work in a hazardous job. Accidents happen not only on the job but also at home—and illness can strike anyone. If you’re comfortable buying life insurance, you shouldn’t dismiss the idea of also buying disability insurance. Here are a few things that may help with your decisions.
2. Figure out what you can afford and get a long-term policy within your budget.
There are many different types of disability policies. Take advice to help you to find appropriate coverage based on your goals and circumstances.
If cost is a concern, there may be ways to get less expensive coverage. You can consider reducing the monthly benefit amount, shortening the benefit period (the amount of time you receive benefits if disabled), eliminating cost of living adjustments, lengthening the elimination period (the amount of time you must be disabled before benefits are paid) and so on. An advisor or your insurer should be able to help explore the right option for you.
3. Don’t underestimate the amount of coverage you need.
Most people think about coverage in terms of their current spending, but your medical expenses can skyrocket if a disability forces you to quit your job and you need medical treatment or are not covered under company medical arrangements. You may also need to buy medical equipment or supplies, or in some extreme cases, renovate your home to accommodate a disability.
Childcare or other dependent care expenses may also rise. Be realistic about how much you need if you can't work and explore what protection is affordable and right for you.
4. Don’t assume your government or employer plan is sufficient.
Many people don’t buy their own disability policies because their employer may provide some coverage, but these plans may not provide sufficient income, or sufficient duration to protect from prolonged absence from work.
Check what coverage you get from your employer and review your needs to decide whether you need coverage and take action to purchase additional disability coverage.
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