Failing to have disability insurance coverage could put you into dire financial straits if you ever become unable to work due to disability. Unfortunately, many people overlook or forget about it. But it is a critical component of financial planning since it protects your income, which is your financial fuel. In this article, we will go over why you need disability insurance coverage, the different types of policies, and the benefits of buying your own policy.
Why You Need Disability Insurance Coverage
Statistics along can be an incentive to show you why you need disability insurance coverage. According to the Social Security Administration, one out of 4 people who are currently 20 years old will experience a disability that lasts for 90 days or more before they reach the age of 67. Never think that it will never happen to you!
Another reason you need disability insurance coverage is to supplement your workplace coverage. Your employer’s policy may only replace 30-40% of your income. Additionally, their calculations do not include any bonuses or commissions you may receive. If you find that your employer-provided coverage falls short in these areas, you will want to purchase a supplemental policy to help fill in the gaps.
Lastly, you want to have disability insurance coverage for at least the amount of time it takes to be approved for Social Security Disability. The process takes a minimum of four months, which is a large amount of time to be without income. So, at a minimum, you should have a policy that covers you for that waiting period.
Types of Disability Insurance
There are two main types of disability insurance; short term and long term. A short-term policy will typically provide you with coverage for a few months, up to the maximum of a year. This type of policy will typically replace 60-70% of your base salary. They also tend to have shorter waiting periods before you begin to receive benefits.
On the other hand, long-term policies will cover you for several years, or until you reach retirement age. Long-term policies will generally replace 40-60% of your base salary. They have an average waiting period of 90 days before benefit payments will begin.
Benefits of Buying Your Own Disability Policy
If you are looking into purchasing your own disability policy, there are several benefits that you will want to factor in. First, you are able to customize your coverage to meet your exact needs. Disability policies are highly customizable and have numerous options, so you can find exactly what you need. Second, you are able to choose the insurance company you want to work with. This way you are able to choose a reputable company that you trust. Third, your coverage always stays with you, unlike employer-provided coverage which will change each time you change employment. Lastly, the benefits are tax-free! If you are paying the premium, then any benefits you receive will not be subject to tax. If your employer pays the premiums on the coverage you receive through work, then those benefits will be taxable to you.
Purchasing Your Disability Insurance Coverage
Once you have done your research and have determined you need disability insurance coverage, you will want to contact a qualified insurance agent. They can help you to shop around for the best policy to fit your needs.
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