Disability
insurance is a key component to a stable financial foundation. Disability insurance
ensures maintenance of lifestyle, and income, should an individual become unable
to work. Though there are various types of disability policies issued by many
companies, the basic disability policy provides coverage for approximately 60%
of earned income to age 65. Slightly higher and lower percentages may apply based
on an individuals income level.
When
disability insurance is mentioned, we must make the distinction between short
term disability and long term disability. Short term disability primarily covers
periods of 6 weeks or less, depending on the policy and degree of disability.
Long term disability will generally cover a term to age 65, but will not to begin
until 30, 60, 90, 120, or 360 days after a disabling event has occurred. The longer
the period before benefits begin, the cheaper the premium required. Some long
term policies may include short term disability in their contracts.
Though
group disability insurance can be offered through employers, individual policies
are also available for purchase. Group disability can be relatively cheap based
on the characteristics of the group being covered (i.e. age, general health, and
claims). Individual disability is based entirely on the characteristics of the
individual, such as age, health and occupation at the time of purchase. For the
purpose of this discussion, we will look primarily at long term disability, commonly
referred to as LTD.
Long
term disability is best utilized when maintenance of lifestyle is dependent upon
maintenance of income level. In all other scenarios where assets have been accumulated
to take the place of earned income, disability insurance becomes pointless. A
cash flow projection based on an individuals assets, income level, and spending
level should be run to determine whether disability insurance is needed. In instances
where an individual's financial independence is tied to their continued ability
to earn income, disability insurance can be key in protecting against unforeseen
disabilities that could negatively impact the ability to earn income.
Disability
insurance has many coverage types. There is temporary- total disability, where
the expectation is a change from total disability to partial disability or even
full recovery, and permanent- partial, where a portion of function is permanently
lost but an individual is not totally disabled. Any of these variations can be
included in the policy itself or as a rider. This can be beneficial, in cases
where there is a family history of stroke, heart disease, etc.
Disability
insurance is usually necessary at some point in life for most people, but once
financial independence has been reached, its usefulness diminishes greatly. In
order to determine your own need for disability insurance, contact your financial
planner or insurance professional.
All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
Henssler
is not licensed to offer or sell insurance products and this overview is not to
be construed as an offer to purchase any insurance products.
