You Insure your most valuable assets such as your home, your car, and your life. Most people would agree that they are worth protection nonetheless, disability income (DI) insurance is something people are far less certain about. They’re not sure whether they actually need it, or whether it is worth the price tag. So? … is it? There is no cut-and-dried response, but there are some strong arguments to be made in favor of DI.
What are the chances you will need it?
When you think about the kind of disability that could keep you From working, normally the first thing that comes to mind is an automobile crash or other catastrophic harm — in other words, something which could happen, but probably won’t.
Arthritis, back pain, neurological problems, and cardiovascular disorders are more common than injuries in regards to disability claims and disabilities are more common than you may think. In actuality, one in four 20-year-olds will become disabled before they reach retirement age, according to the Social Security Administration. You probably know somebody who’s had to take time off from work for medical reasons, even if it is not permanent.
What is DI?
DI, when you boil it down, is insurance for a portion of your income. And your income — more than your car, or home, or any other big-ticket item — is the most valuable asset. It is what pays for your essential expenses such as housing, utilities, food, clothing, transport, in addition to your not-so-essential ones. Your income can help encourage members of your loved ones, too. Think tuition, childcare, medical bills, etc.
Even if you don’t think of your annual salary as especially Big, over a lifetime it adds up. By way of instance, a 35-year-old earning $50,000 a year will make $1.5 million between now and retirement at age 65. And that’s not even accounting for the occasional increase or bonus. (Disability calculator)
If you had to stop working due to a disability, the earnings you are earning now simply would not be there anymore. You would need to find another way to pay your living expenses and to encourage the individuals who rely on you. That is where DI comes into play.
What about other alternatives?
Naturally, there are a few other sources of income you could be able to draw on in the event that you become disabled. Lots of individuals have what is called group long-term disability insurance through their own employer. This can be a very helpful advantage, but there are a few important things to consider.
First, if you leave for another job, you may not be able to take Your disability policy with you and your new employer may or may not offer the exact same benefit. Secondly, if your employer pays for the coverage, the benefits you would receive if you became disabled will be taxable.
Most importantly, the type of disability insurance you get from work Typically only covers about 60 percent of your earnings, not including any commissions or bonuses you may normally receive. Another 40 percent is your decision.
You may be thinking that there is always savings. If you have enough cash in the bank to pay your living expenses for over a month or 2, you are in better shape than the huge majority of Americans. If you do not, you would want to look at another alternative. Also, remember that the normal disability lasts a lot longer than the one-to-two month range. The typical length for all MassMutual DI claims is four years.4 Many people’s savings will run out long before that.
Can I afford it?
When you are already paying for other types of insurance — home, Auto, life, etc., — it is tough to consider buying more. But a fantastic way to frame it’s what DI prices vs. what the advantage is if you used it.
Here’s a hypothetical: Say a 30-year-old guy, taking home $56,250 Annually buys a disability insurance plan which costs him $929 each year. (By comparison, he could be spending $985 annually on a daily coffee, assuming an average cost of $2.70.5)
If he becomes totally disabled, after a 90-day waiting period that he Could receive $4,050 per month over 12 months, replacing about 86 percent of his pre-disability, after-tax earnings — and hopefully allowing him to maintain his coffee habit.
There are, of course, some limitations and eligibility requirements for DI. So in the long run, it is a matter of if you feel as the benefit you could get outweighs the expense of premiums and the uncertainty that comes with not having any policy in any way. Costs and benefits differ from policy to policy.
Protecting your most valuable asset
With any luck, you will never have to deal with a handicap that keeps you from having the ability to work. But it’s a good idea to have a strategy in place, so that if you did become disabled you may cover your expenses and provide for the individuals who rely on you.