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Disability Income Insurance: Understanding the Need

Financial security is on everyone’s mind lately, mostly because we don’t seem to have any – security that is, not minds.  We are bombarded daily with all sorts of scary statistics and dire predictions.  Deaths due to the old, familiar ‘big three’ (cancer, stroke and heart attack) have significantly decreased over the past twenty years, while disabilities due to the same three are way up.  The growth in the popularity of critical illness coverage is part of this trend, given the rather alarming price of recovering from a major health challenge.

So this begs the question: does your way of life depend on your income? If you were too sick or injured to work for a while, what would happen to your savings?  Could your spouse’s income alone cover you for six or eight months?   If you are single, with only one income to count on, what happens to your retirement plan and your credit rating while you recover?  The bills will still be there; the mortgage or rent payments, too.  Car loans.  Insurance premiums.  Childcare.

You may have a group disability benefit from an employer, which is great.  But keep in mind that group disability benefits are usually taxable; with the typical policy covering 60% of your income (or about 42% by the time the taxes are calculated), you might have a tough time getting by.  Social Security denies more than half of all disability claims, according to a 2005 SSA publication.  A 2007 Consumer Federation of America survey found that some 40% of adult Americans had separate emergency savings funds – and that number is surely lower today.  You may be eligible for workers’ compensation coverage if your disability results from a work-related injury or illness on the job – but what if it doesn’t?

Okay.  We have established that we should at least talk about individual disability income insurance.  We will look at the pros and cons, the average cost, how the underwriting works, what a good policy covers.  Check for resource links.  We will do this step-by-step, with a minimum of insurance speak.

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