Financial Literacy

A serious illness or injury doesn't discriminate against singles and couples ... or those with children or dependent parents. The fact is everyone needs disability insurance. Be careful not to skimp on disability coverage to increase your other insurance coverages.

Disability insurance is the most overlooked form of insurance, yet it protects your most important asset: your ability to earn income.

Did you know that:

• Your chances of becoming disabled (three months or longer) are much greater than your chances of dying while you're still working (assuming you stop working at age 65).
• A disability lasts an average of three years.

So why do most people consider life insurance before insuring their income?

• Individuals who work for large corporations believe their companies, or the government, will take care of them if they get sick or injured.
• Deep down inside, they believe it will happen to the next guy, not to them.

Simply put, as long as they have a job, they take their income for granted. That's a big mistake!

Here are some general rules about disability insurance:

1. At a minimum, your disability insurance should replace 60% of your current monthly income.
2. When an employer allows you to purchase more disability insurance, purchase as much as you can (not as much as you can afford). You can't afford to be without it.
3. If an employer does not offer a plan, or if your employer-sponsored coverage doesn't cover at least 60% of your current monthly income, consider purchasing individual disability insurance.
4. If you're married and both of you are employed, it is important to have disability insurance for both of you (not just for the higher earner). After all, it takes two paychecks to support your current lifestyle.
5. Hospital Indemnity policies are not a substitute for disability insurance. These policies pay you a fixed dollar amount, for example, $50 per day during your hospital stays. These are not disability income policies and we suggest that you avoid purchasing them. If you have one, consider applying those premium dollars instead to a policy that will replace your income when you're disabled—and doesn't require you to spend time as a patient in a hospital.

To begin with, you need to know where the money will come from if you can't work; there are several possible sources of disability income that you may be able to take advantage of. You need to recognize that company plans are only part of the solution, and you need to be realistic about your lifestyle in determining how much is enough.

Disability insurance doesn't have to cost an exorbitant amount; you can make choices about the kind of insurance you get that will hold down the costs. You also need to know how to shop for a policy, and whether or not your disability benefits would be taxable.