Protecting Against Disability

In my last blog, I highlighted some of the ways that professional athletes and sports teams protect themselves from the loss of income due to disability. But what about the rest of us? How can we protect our income from the financial hardship brought on by a long term disbability?

According to the Social Security Administration website, a 20 year old worker has a 30% chance of becoming disabled at some point before reaching retirement age. I have read surveys that indicate a whopping 70% of working Americans could afford only a month without income before needing to return to work to pay the bills. An even higher percentage couldn't afford to miss one paid day of work. In this spend-first and save-later American lifestyle, people simply aren't financially prepared to withstand the loss of a paycheck.

Conventional practice among financial planners is to recommend clients sock away at least enough cash to withstand the loss of income for three months - an emergency fund. There is, however, another way to insure against personal financial problems - disability insurance.

Short and long term disability is often overlooked and under-appreciated by many of us because we simply repress the notion that our lives will be disrupted by a disability. The sad reality is that too many families are turned upside down by a disabling injury or illness simply because they didn't have an adequate safety net to fall back on.

Disability insurance covers the salary or wages you lose when you're unable to earn a living because of illness or injury. If you or your family would suffer from the loss of your income, you should consider purchasing disability insurance. The cost of buying your own disability policy depends on your age, gender, the riskiness of your occupation and other factors, but for a relatively low premium, an individual can receive monthly benefits - tax free.

Many employers, however, offer group disability insurance through their employee benefit programs. Private disability insurance is designed to pay you a certain percentage of your income (usually 50 or 60%) should you be out of work (due to an illness or accident) for an extended period of time.

There are also public benefits for workers who become disabled, but many people are under the misconception they don't need private disability insurance because the gov't will step in if they are disabled. While it is true Social Security Disability Insurance (SSDI) can provide income to workers who have worked in jobs covered by Social Security and have a medical condition that meets Social Security's definition of disability, the system is designed to pay monthly benefits to workers who are unable to do any work - not just your usual job - and your condition is expected to last for at least a year or cause your death. The benefits are not easily accessible - the majority of the claims are rejected.

If you have any questions or comments about disability insurance, please e-mail me at jmahoney@aspencross.com, post your comments here or call me at 508-870-0440, ext 187.