Do You Need Disability Income Insurance?

Long-term illness or injury can put an individual or family dependent on one member’s income at risk for financial catastrophe.  Your best defense against this may be the purchase of a disability income insurance policy with enough coverage to compensate for your lost wages i.e., paying your mortgage or rent, buying groceries and meeting other ongoing living expenses.

Putting Policies in Perspective

For most people, there are two main forms of disability income insurance to consider, employer-sponsored policies (called "group" policies) and private insurance policies:

1.      Group policies are relatively inexpensive and generally remain in effect for as long as the individual remains with the employer.

There are often significant limits on the benefits provided by these policies, so it's important to determine whether coverage is adequate for your needs.

2.      Private insurance policies, paid for by individuals, typically are more expensive than group policies but may also provide a higher level of coverage.

You may want to consider purchasing a private policy to fill in the income gaps frequently associated with group-only coverage.

How Much Disability Income Insurance Do You Need?  

The key to determining your needs is to assess your weekly or monthly spending habits.  You can work off your budget to determine how much you’d still be spending if you’re unable to work.  For example, if you would need 80% of your pretax earnings but your group policy would only pay an amount equal to 60%, then you may need additional coverage.

Disability Defined

The way in which an insurance policy defines disability can determine your eligibility to receive benefits. The following is a quick overview of three basic definitions:

·         Own-occupation: States that you are unable to perform the duties of the occupation you were performing at the time of the disability.

·         Income replacement: Defines disability as sickness or injury that doesn't allow you to perform the duties of your occupation and typically stipulates that you are not currently engaged in any other occupation.

·         Gainful occupation: Defines disability as the inability to perform the duties of your occupation or any occupation that you are considered to be reasonably qualified for by way of your education, skills or training.

A qualified insurance professional can help you assess your need for disability income insurance and find a policy that is most appropriate for you.

Source: This article was prepared by Standard & Poor's Financial Communications

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