You may think your most important asset is your home, your 401(k), or even your possessions; however, it is your ability to earn a living. Everything you have been planning—paying for your child’s college education, buying your dream home, and retiring—hinges on your ability to bring home money until you retire. You don’t hesitate to insure your home, car, and other valuable items. So why hesitate to insure something much more valuable than all those things?
We know that life insurance can minimize the threat to a family’s financial security by protecting against a parent’s premature death. However, the Social Security Administration has figured among 20-year-olds, more than 1-in-4 will become disabled for at least one year before they reach retirement age. A prolonged or permanent illness or injury can be a costlier drain on your family finances than the death of a parent.
This is where a disability insurance policy fits into your financial plan. A disability policy can replace a portion of income if you are unable to work because of a disabling event. Counting on worker’s compensation is not always an option, as it only covers time away from work if the disabling illness or injury was directly work-related. In 2019, less than 1% of American workers missed work because of an occupational illness or injury.
Social Security Disability Insurance may not help you either. In the nine years from 2009 to 2018, only 32% of claimants qualified for benefits. In fiscal year 2020, the Social Security Administration had a backlog of more than 400,000 cases, with 38% of them being over nine months old.
You also want to obtain an own-occupation policy. An own-occupation policy will deem you disabled if you cannot perform the duties of your profession and should not penalize you if you can find employment in another field. Any-occupation means if you can perform any job, then you will not be eligible for benefits. This more closely follows the Social Security guidelines for eligibility.
Own-occupation policies may be more expensive, but for your family, it could be the difference between living on 60% of your current salary or a part-time minimum wage job. The benefits can be tax-free if you pay the annual premiums. If your company pays the premiums, the benefits should be taxable to you.
Many companies provide coverage through a group disability policy; however, a group disability policy generally is a hybrid between own-occupation and any-occupation. A group policy typically states that for the first 24 months, your disability is considered own-occupation. After two years, it will be considered an any-occupation policy. Generally, if you can perform any type of gainful employment—regardless of if you can find employment—you are often not considered disabled.
Most often, a long-term disability policy covers a specified benefit period, with benefits beginning after a 30- to 360-day period after a disability occurs. Generally, the longer the period before benefits begin, the less expensive the premium. It is also important to understand no disability policy will cover 100% of income. They replace between 40% to 60% of income until you are able to work again.
If you have questions about having the appropriate insurance policies in place to protect your family, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the October 8, 2022 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
