November 2012: Disability Insurance

What’s your most valuable asset? If this question were presented to the average working American, the popular answers would be something like: my car, my 401k account, or my home. While these responses to the question are certainly valid, they’re just not landing in the center of the bulls eye.

You see, truthfully, your greatest asset is your ability to generate income. Think about it–without consistent income:

  • a car cannot be purchased, or repaired for that matter
  • everyday house hold expenses will go unpaid, potentially leading to foreclosure of your home
  • your children’s education could be jeopardized
  • no pre-tax dollars are deposited into your 401k

Just like a business that needs consistent cash flow to keep its operations running, so too does your personal household. Try to quickly imagine how easy, or difficult, it would be to cover your monthly expenses (i.e. mortgage, electric bill, etc.) if you stopped generating an income due to an unforeseen disability.

A recent study discovered that half of working American families would experience serious financial difficulties within a month, if the main breadwinner’s income ceased. Without regular income, close to one in four Americans wouldn’t make it a week!

Who needs disability insurance?

So exactly what are YOUR chances of becoming disabled and missing work for weeks, months, or even years? The Council for Disability Awareness’s Personal Disability Quotient (PDQ) Calculator helps you to see your personal odds of becoming disabled.

The bottom line is this–if you have a job, you most likely need some disability coverage. An unexpected interruption of your income would make it nearly impossible for most Americans to pay their bills on time. According to a 2005 Harvard study, almost half of all home foreclosures and bankruptcies result from some type of disability. A personal disability policy provides the peace of mind and income assistance needed should an illness or injury occur.

Monica had it all by the age of 37… she never dreamt that a disability would change her life forever. Please watch this 4 minute video and hear her powerful story.

Statistics
Freak accidents are NOT usually the culprit… back injuries, cancer, heart disease and other illnesses cause the majority of long term disabilities.

Per the Council for Disability Awareness:

43% of men and 54% of women will experience a disability in their lifetime.

  • Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.
  • Those over the age of 42 are four times as likely to become disabled by age 65 than they are to die.
  • Over 36 million Americans are classified as disabled; More than 50% of those are in their working years.
  • 1 in 8 workers will be disabled for five years or more during their working careers.

What are the types of disability insurance?

Short-Term Disability Insurance
Typically, a short-term disability policy will provide benefits for 90 days. An individual may elect to have the benefits begin immediately or after a waiting period (i.e. 7, 14 days, etc.). Many of these policies provide coverage for maternity leave, but you should read the terms and conditions carefully as policies may have varying conditions.

Long-Term Disability Insurance
Long-term disability insurance can be purchased to replace 50-80% of your current salary. The waiting period for the benefit is usually 90 days. Experts contend that this type of insurance policy is the “most important insurance one can purchase” because many diseases and injuries are more disabling than deadly. The payout for this type of policy can vary from 5 years up until age 65.

How much do I need?

Perhaps a better phrasing of that question would be: If I were unable to work, how much money would I need (on a monthly basis) to cover my living expenses? The answer to this is not complicated. Basic budgeting and math will reveal the facts.

Since most Americans live paycheck to paycheck, there typically isn’t a significant savings balance to draw from. The financial worry and stress caused by a sudden disability can be unbearable.

Be sure to access this Disability Insurance Needs Calculator to help you assess the income needed to sustain your current standard of living in lieu of a disability.

Some final thoughts…

Coverages vary–Please keep in mind that coverages for either short-term or long-term disability insurance will vary based on carriers and the riders they may offer. For example, many will allow you to purchase an “inflation rider,” which allows the benefit to increase by a specified dollar amount or percentage.

Watch out for Uncle Sam–Many employers offer some type of disability coverage (usually long-term) as a part of your overall benefits package. It’s important to note that your employer’s disability plan payouts will be taxable, where as your personal disability policy payouts are tax free.

Don’t forget Workers’ Comp–If an injury or illness occurs as a result of work-related duties, your employer’s workers’ compensation program would be the primary source of coverage for your disability.

You can’t take it with you–Employer’s disability benefits are seldom portable, meaning that when employment is terminated, you terminate your benefits as well. Therefore it is always advisable to have a personal disability that stays in force, regardless of where you may work.

If the paychecks stop because of a personal illness or injury–and the odds are much greater than you might think–a disability insurance policy would step in to help with replacing your lost income until you’re able to return to work. Visit the Defend Your Income DoJo for a unique interactive experience in learning how to defend your income against disability.

How We Can Help You…

You have worked hard to put money aside for that dream vacation, your children’s education, and even retirement. The facts are clear–a disability can be life changing, threatening the plans you have made and risking your financial stability.

Because there are many aspects to a personal disability insurance policy, many individuals prefer to seek professional guidance in understanding available coverages and options. We are available to not only speak with you but also your employees about their personal needs.

As your Trusted Advisor we are committed to providing you with the education and policy opportunities that suit your particular needs. Please don’t hesitate to contact us for a complimentary disability insurance review. 800-95-TOOLE or riskmanagement@tooleinsurance.com

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