Disability
Your most important asset is not your home, your car, your jewelry or other possessions, it’s your ability to earn a living. What would happen if your paycheck stopped? That’s where disability insurance comes in, and provides an income to you and your family when you are unable to work because of illness or injury.
Your income is typically your largest asset. Think about how much you earn in a year and what that would be over a lifetime. A 25-year-old making $50,000 a year and becomes permanent disability could lose $3.8 million in future earnings. You insure your home, car and other valuable possessions, so why wouldn’t you insure something more valuable, your income.
Most people couldn’t make it one month without their income before financial difficulties would start setting in, and the risk of becoming disabiled is greater than you think.
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Tip for buying Disability Insurance
Accident policies only pay for accidents, disability provides an income for illness or injury.
Know the policy, how does it define “can not work.” Does it mean not being able to work your current occupation, or does it mean not being able to work at any job?
When does it start paying and how long does it continue to pay, policies can start as soon as thirty days and pay for months, years, or up to age sixty five. Policies with a longer waiting period before they start paying and pay benefits for a shorter period of time have lower premiums.
Disability insurance usually pays 60%-80% of their income, and some policies have optional riders to increase payments with inflation.
If you pay for the disability insurance benefitrs are generally not taxed as income, but if your employer pays for it, then some or all of the benefits will be taxed.
Disability insurance is especially important for business owners. Some policies provide recovery benefits beyond the period of disability when an owner must rebuild the business. Business owners should also consider “Key Person Insurance” to protect their business from loss due to the disability of key employees.
Social Security only pays for people who cannot work at all. Workers’ Compensation only pays if an illness or injury is work-related. Automobile insurance only pays if an injury is caused by an automobile accident. A helpful booklet is “The Consumer’s Guide to Disability Insurance,” Health Insurance Association of America, 555 13th St., N.W., Suite 600 East, Washington, D.C. 20004.