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What Kind of Disability Income Insurance Do I Need?

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Disability insurance policies can travel with you after losing a job, and can save you big in a worst case scenario.

When a client asks me about insurance of any kind, I usually start with a question like, “If the event you are insuring against occurs, will you be the happiest you could possibly be with the decision you make today?”
 
That usually elicits a bit of head scratching and a kind of “huh?” look…
 
Wouldn’t it be great if you could buy insurance after the accident, natural disaster, sickness, disability or death occurs? Well, you can’t. And since you can’t, you’ve got to buy it now as if you were on the other side of the event.
 
For most working Americans, their ability to earn an income is the most precious asset they possess. Yet, most leave it uninsured or very under-insured. You probably couldn’t sleep at night if your house was not insured against nature’s catastrophes. Yet most of us go right on, blissfully ignorant of the perils of becoming disabled.
 
Since a long term disability would mean bankruptcy for most working Americans, having coverage through your work is much better than having none at all.
 
Most long-term disability income insurance offered through work covers about sixty percent of your salary at the time of your disability. The benefits are usually taxable and the benefit never goes up.
 
But what happens if you lose (or leave) your job? Right –you lose your disability insurance too.
 
On the other hand, individual coverage may not be free, but it is totally portable. Leaving your job does not mean leaving your protection. The benefits are not taxable when you pay your own premiums and you can get a cost of living provision, so your monthly benefits rise with inflation.
 
I did an analysis for someone recently, showing them the results of owning individual disability insurance coverage and not using it vs. not owning it and wishing they did. The difference was well over one million dollars. The cost of owning the coverage for his entire working life was less than a one percent reduction in his net worth by the time of retirement. But if he needs the coverage and does not have it, the cost will be over one million of lost wealth and a likely bankruptcy.
 
As with any insurance purchase, work with a knowledgeable and experienced licensed agent.
 
The cost of not owning what you need could be higher than you’d ever imagined.
 

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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