Help Protect Your Income With Disability Insurance

You probably don't think twice about the need for life insurance. After all, if something were to happen to you, you'd certainly want your family to have adequate financial resources. But like many people, you may be overlooking disability insurance - and that could be a costly mistake.

Of course, if you're healthy, and you work in a job that isn't physically risky, you might initially scoff at the thought of disability insurance. But consider these statistics:

• If you are 20, you have a three in ten chance of becoming disabled before you reach retirement age, according to the Social Security Administration.
• If you are 35, you are six times more likely to become disabled than you are to die before you reach 65, according to the American Council of Life Insurers. Furthermore, a 35-year-old person who is disabled for 90 days is likely to become disabled for an average of three years.

These numbers suggest a strong need to help protect yourself and your family. Remember, you don't have to be involved in an accident to become disabled; a serious illness also can put you out of commission. And even a brief disability, with its consequent disruption of your income, could seriously harm your financial stability and your progress toward your long-term goals.

Types of disability coverage
You can find two basic types of disability coverage: short-term and long-term. Short-term disability provides you with income for the early part of a disability - anywhere from two weeks to two years, depending on the policy. Long-term disability can replace income for a set time period - such as five years - or until you turn 65.

Both short- and long-term disability policies usually will pay you anywhere from 50 percent to 66 percent of your salary. If you pay your own premiums, your disability benefits are typically tax-free. But if your employer pays for your policy - usually with "pre-tax" dollars - your disability payments will generally be taxable.

Buying individual policies
Employers generally provide short-term disability coverage as a standard benefit, but long-term disability may be optional, if offered at all. You should become familiar with the disability coverage offered by your employer. If your employer offers you short-term disability coverage as part of a group plan, take it.

To supplement your group coverage, you may want to consider buying an individual long-term disability policy. Here are some of the key questions to ask about individual long-term disability policies:

• How is disability defined? This is key. Some policies will only pay benefits if you can't do your normal job; other policies pay if you can't work at all. Also, some policies require that you be totally disabled before you receive payments, while other policies pay for partial disabilities. A top-of-the-line policy will feature income replacement for your occupation. These types of policies may not be canceled and are guaranteed to be renewed. That means the company cannot change definitions, benefits or revoke the coverage once its in place, assuming all premiums are paid on time.
• When do payments begin? Typically, you can choose to start receiving disability payments from 31 days to the first six months after you become disabled. The longer you wait to start receiving payments, the lower your premiums will be.
• How long is the coverage? Long-term disability policies generally pay for two years, five years, or until you turn 65. The longer you receive payments, the higher your premiums.
• Is the policy inflation-adjusted? You can add a cost-of-living adjustment - which typically increases payouts by four to 10 percent each year - to your policy.
• Do I have to pay premiums if I become disabled? Look for a policy that offers a "waiver of premium," which frees you from paying premiums if you're disabled for 90 days or longer.

Help protect yourself - now
By evaluating your disability income needs with your financial professional, and by finding the right coverage for your particular situation, you can help protect your family from the devastating effects of an employment-threatening injury or illness. And, since the future is not ours to see, you'll want to take action soon.