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Disability Insurance 101

What is Disability Insurance?

Disability insurance (also known as income protection insurance) is designed for one purpose: to help provide financial security in the event a long-term illness or injury prevents you from earning your usual income. With this coverage your future earnings can be protected should illness or disability strike.

“We all face three perils to financial security, living too long, dying too soon, and prolonged periods of disability during our working years. The worst of these is the living death.”

Who Needs Disability Insurance

More than a quarter of today’s 20 year olds will become disabled, according to the Social Security Administration (SSA). No matter what job you have.  It does not have to be a freak injury that prevents you from working – back injuries, cancer, heart disease or other illnesses are the majority of the reasons for long-term absences.

“The LIFE Foundation conducted a study that found that 70 percent of working Americans couldn’t make it 1 month before financial difficulties would set in. More than 1 in 4 Americans wouldn’t make it a week.”

Are you prepared if you can’t work due to a long-term disability? The average long-term disability last 2 1/2 years; do you have the emergency savings to cover that long away from work? If not, you need to make sure you have long-term disability insurance.

Disability Insurance Protects Your Income

Think of long-term disability insurance as income protection. Becoming disabled is the No. 1 reason people go into bankruptcy or see their homes go into foreclosure. If you get long-term disability insurance through your employer, it may not be enough to cover all your costs.

Cost of Disability Insurance

For a good policy with a premium carrier with to age 65/67 benefits, residual (partial disability), and a future purchase option rider, you should expect to pay between 3% and 6% of your income for a comprehensive disability plan.

Why do you need long-term disability insurance?

• More than 30 million Americans between the ages of 21 and 64 are disabled, according to the U.S. Census
• 2.3 million Americans filed disability claims with Social Security in 2008.  In 2009, 65% of Social Security Disability Insurance claims were denied
• More than 25 million American lives are restricted by the effects of disability, according to the Centers for Disease Control and Prevention

More Information

• Understanding Your Disability Insurance Policy
• Supplemental Disability Insurance
• Group (Employee-Sponsored) vs. Individual
• Disability Insurance Plans