Most Valuable Asset

Your most valuable asset isn’t your home, car, or retirement account. It’s the ability to make an income. Your ability to provide an income is essential to your family’s day-to-day ability to afford goods and their future. What would you do if you couldn’t work? How far could you go without a paycheck? Only 14% of Americans own some form of disability coverage. Fifty-one million Americans lack sufficient disability insurance coverage. Disability insurance is a proven way to help protect you and your family by replacing a portion of the income you would lose if you suffered an illness or injury that prevents you from working.

What is Disability Insurance?

Disability Income (DI) insurance is an insurance policy that provides income to individuals who can no longer work because of a disability. Disabilities can disrupt incomes and prevent people from maintaining their standard of living, paying their bills, or providing for their families. Enrolling in a disability income insurance policy can help individuals mitigate any losses from an illness or accident leading to a short- or long-term disability.

How it works

DI insurance isn't designed to guarantee 100% of your regular income. Instead, it intends to replace about 60% of your gross income. Premiums are based on a series of factors, including age and occupation. If you work in a field with a higher risk of injury, your premiums will be higher. The amount of income you receive is also factored into how much you pay for coverage—the more you earn, the higher your premiums. Policies pay benefits if illness, accident, or injury prevents you from performing your occupation's material and substantial duties. Benefits are tax-free because the policyholder uses after-tax dollars to pay premiums. Unlike health insurance payments, disability benefits are paid directly to you, so you can use the funds however you like. As long as you qualify, payments will continue until you are able to return to work or until the end of your benefit period.

Types of Disability Insurance

There are two types of DI coverage: short-term and long-term.

Short-term disability insurance can provide weekly benefits for a limited time, typically about six weeks up to two years. This coverage is often known as “own occupation,” which means you’ll be paid benefits if you are disabled due to an injury or illness that prevents you from being able to perform the duties of your occupation.

Long-term disability insurance provides weekly benefits for an extended period of time up to a specific age, like 65. Most policies will pay long-term benefits if you cannot perform the duties of your occupation for more than 24 months.

Disability Insurance vs. Government Programs

You may be wondering why I would need disability insurance when the government offers programs to help me. Government programs like Social Security Disability are available to most workers who have been in the workforce for a specified period of time. Still, the program's benefits may be insufficient to address all of your financial needs, and they usually do not offer all the features you would be able to purchase with an individual policy.

Consider buying an individual policy if you don’t have any or enough disability coverage at work or are self-employed. Employer-sponsored disability insurance usually pays only a portion of your base salary, up to a cap. It’s a good idea to supplement that coverage if your salary exceeds the cap or you depend on bonuses or commissions.

An insurer will consider other sources of disability insurance to determine how much coverage you can buy.

Benefits of buying your own policy

By buying your own policy, it lets you:

• Customize the coverage with extra features, such as annual cost-of-living adjustments

• Choose the insurance company with the best offerings

• Keep the coverage when you change jobs

  • Employer-paid coverage ends when you leave the company

    • You might be able to take the coverage if you pay the full premium for disability insurance offered through the workplace

• Control the disability insurance

  • The coverage stays intact as long as you pay for it

    • Employer-sponsored coverage will end if the employer decides to stop providing disability benefits

• Collect benefits tax-free if you become disabled

  • If the employer pays for the coverage, you must pay taxes on the benefits

Cost of Disability Insurance

The annual price for a disability insurance policy generally ranges from 1% to 3% of your yearly income, according to the Council for Disability Awareness.

A variety of factors affect the cost:

• Your age and health

  • You’ll pay more the older you are and the more health problems you have

• Your gender

  • Women usually pay more because they tend to file more claims

• Whether you smoke

  • You pay less if you don’t smoke

• Your occupation

  • You’ll pay more if you work in a job with a high risk of injuries

• The definition of disability

  • The broader the definition of disability, the higher the premium

    • A policy that covers you if you can’t work in your own occupation but could earn income in a lower-paying job will cost more than a policy that covers you only if you can’t work at all

• Length of waiting period

  • This is known as the elimination period

    • You can reduce the premium by increasing the waiting period before benefits kick in

• Your income

  • The more income you have to protect, the more you’ll pay for coverage

• Length of benefits

  • The longer the period that the policy promises to pay out if you become disabled, the more you’ll pay in premiums

• Extra features

  • Additional features, such as cost-of-living adjustments to protect against inflation, will increase the premium

When to get Disability Insurance

Everyone needs to review their coverage options, but most importantly, if you are a small business owner, self-employed certified professional, the primary income generator, or a high earner. Small business owners do not have the option of purchasing coverage through a large employer.

Individual disability insurance can help replace more than just your salary, such as bonuses and commissions, that sales professionals, stockbrokers, and others who receive income above straight salaries rely on.

All of this information is great, but the best way to express how important disability insurance is is to share its impact on someone who has been able to utilize its benefits.

A Real-life Example

When my friend Tim decided to open his own business, thankfully, he worked very closely with his insurance agent to put comprehensive personal and business insurance in place. At the time, he didn’t know that his careful planning would save both his business and his family from financial ruin. Tim suffered a life-threatening aneurysm that left him unable to work. Thanks to disability insurance, he received financial support during this challenging time. The policy helped cover essential expenses like his mortgage payments, utility bills, and medical costs, allowing his business to continue operating even when he couldn’t be actively involved. The coverage provided a very crucial safety net that protected his income and safeguarded his operations. It was and is a valuable asset that offers peace of mind to Tim and his family.

If you are interested in learning more about Disability Insurance or feel like this could benefit you and your family, reach out to your financial advisor. They can speak with you more about this topic and get you in contact with the right resource.