Can You Count on Disability Income?

It’s not pleasant to think about what could happen to your family if you were to become seriously ill or otherwise disabled for an extended period of time. The reluctance to confront that risk may be one of the reasons why 69% of private-sector employees have no long-term disability insurance.¹

It’s estimated that 43% of 40-year-olds will suffer a long-term disability before they reach age 65.² Would your family have enough income to maintain its current lifestyle if you were disabled and forced to stop working for many months, or even years? If not, you might consider the increased financial security that disability income insurance can offer.

Disability income insurance replaces a percentage of your salary if you should experience a disability that makes it impossible for you to continue working. Benefits may be paid for a set number of years or until retirement age. Some policies will pay benefits if you can’t perform your current occupation, whereas others will pay benefits if you cannot perform any type of job.

The Social Security Administration offers some disability benefits, but the average monthly benefit in 2008 was $1,005, an amount that would not replace a significant portion of many workers’ previous incomes.³

Some workers may be covered by an employer-sponsored group disability plan. Unfortunately, group plans are often limited to 60% of income and may cap monthly payments further. This could result in greatly reduced income for highly compensated employees. If the employer pays the premiums (and the costs are not included in employee incomes), the disability benefits are generally taxable as income.

On the other hand, an individual plan that you purchase for yourself may cover up to 70% or 80% of your current income. If you have paid the premiums, the disability benefits are generally not taxable as income. Even if you benefit from group disability insurance, a supplemental plan could help you fill the income gap and maintain your family’s current standard of living.

If you are disabled without an adequate income, your retirement savings could be depleted, or debt could mount as you attempt to pay your regular living expenses. You might even find yourself unable to pay your current mortgage and medical bills.

People who neglect to plan for the possibility of a prolonged disability run the risk of encountering serious financial hardship one day. We can help assess your disability insurance needs and determine the appropriate type and amount of coverage for you and your family.

1, 3) Social Security Administration, 2008
2) 2008 Field Guide, National Underwriter

This material was written and prepared by Emerald Publications.
© 2009 Emerald Publications