Disability Insurance

Your ability to earn an income is the most valuable asset you have. It is the foundation that supports your financial security, from today's expenses — such as your home, car, education and investments — to future goals, such as your retirement savings.

Most people insure their material possessions- their home, furniture and cars. But, many of these same people don’t insure what is their most valuable asset –their ability to work and earn an income. If an illness or injury prevents you from working, disability income insurance can help ensure that you continue to receive an income, enabling you to meet daily expenses and secure your financial future. The risks of experiencing a disability may be greater than you think. It's hard to imagine becoming disabled, yet illnesses and accidents can happen to anyone at any time.

For example:

A working individual, age 40, has a 43% chance of becoming disabled for 90 days or more.
And a working couple, both age 40, have a 68% chance of at least one individual becoming disabled for 90 days or more.

In fact, the risk of disability is greater than the risk of premature death. And although it is more common for people to associate disability with serious accidents, the majority of disabilities are caused by illness. Once disabled, many people remain unable to return to work for several years, if ever.

A disabling illness or injury will have a dramatic effect on your ability to save for retirement and affects your employee benefits, such as employer-sponsored medical benefits.

Take, for example, a 45-year-old individual who is earning $75,000 a year and experiences a disability. Assuming no changes to salary and disability, this individual could potentially have up to a half a million dollar reduction in assets and savings at age 65 as a result of a two-year period of disability.

Please click here for a disability survey compiled by the Council for Disability Awareness (CDA), a non-profit group dedicated to helping the American workforce become aware of the growing likelihood of disability and its financial consequences. The purpose of the survey is to identify continuing or emerging trends in disability claims of the American workforce, and to share them with interested audiences.

Disability policies have two different protection features that are important to understand.

Non-cancelable gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
Guaranteed renewable gives you the right to renew the policy with the same benefits and not have the policy canceled by the company, However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.

To help determine how a disability could affect your immediate and long-term financial situation, ask yourself the following questions:

If you become disabled, will you need to rely upon your savings and investments to help cover your needs and expenses?
Could a market downturn adversely impact your investments and affect how long you can rely on those investments to provide income?
Would withdrawing money from your savings and investments affect your ability to reach future goals, including retirement?
Are there taxes or penalties for early withdrawal on any of the sources you would rely upon if you suffered a serious injury or illness?
If the answer to question 4 is "yes," will this affect how long your assets will last if you are unable to work?

If you answered "yes" to any of these questions, you can see how your savings may not reach as far as you think, especially if the disabling illness or injury increases your expenses. What's more, the inability to save and invest for retirement today can have a long-term impact on your lifestyle and comfort in retirement.

Social Security alone will not meet your needs.

Unfortunately, relying on Social Security alone will leave you at risk. According to the Social Security Administration, only 35% of all applicants for Social Security disability actually received benefits after their initial claim.

Not only is it difficult to qualify for Social Security disability benefits, but there is a long waiting period before you can receive them. Also, Social Security benefits are designed to replace only a small part of your income.

Owning your own individual disability income insurance policy provides several benefits:

It can help close the protection gap. Whether or not you have employer-sponsored disability income insurance, owning your own disability income insurance policy can help ensure that you have the right amount and type of coverage to fully meet your needs if you experience a disabling injury or illness. In addition to helping ensure that you cover daily expenses, it can help ensure you have the resources to continue to save for retirement and other future goals.
It's portable. Even if you change employers, you'll have the protection you need.
You can customize your policy to fit your financial goals. There are several types of disability income insurance. Each policy offers a variety of features and benefits. For example, some policies provide for an annual cost-of-living increase. A policy may also enable you to receive benefits even if you return to work, but are unable to perform in your current occupation.

The bottom line: disability income insurance is a smart way to ensure that a serious long-term injury or illness does not prevent you from receiving an income or from reaching your financial goals.

Get the right protection for your needs.

There are a variety of policies and options you should consider when purchasing income protection. Wealth Dynamics will counsel you on these options.

Sources:
Council for Disability Awareness, www.disabilitycanhappen.org
Social Security Administration, www.ssa.gov