Articles - Archived Expert Advice

Disability Insurance

My employer does not provide disability insurance. Do I need this coverage if I am young and have good health?

Yes! Disability insurance is an important component of any sound financial plan. According to the American Council of Life Insurers, one-third of working adults between the ages of 35 and 65 will become disabled for more than 90 days. At some point, you may become sick or injured and unable to work. The purpose of disability insurance is to provide the income you need to pay bills until you are able to return to work.

Long-term disability insurance only replaces a percentage of your income if you cannot work. Private policies may replace 60 to 70 percent of your current income. No policy will replace 100 percent of your income for fear you will have little motivation to return to work. Benefits are normally paid for a set number of years or until you reach 65. This income should be tax-free because you are paying the premiums with after-tax dollars.

Policies can vary from company to company, so review them carefully. When shopping, look carefully at the company's definition of disability. This provision states when the company will pay out monthly benefits. Some policies will pay if you cannot perform the duties of your current job (called "own occupation"). Other policies will only pay if you cannot perform the duties of any available job.

There are a couple of things you can do to reduce your premiums. Obtain several quotes that are tailored to meet your needs. Also, consider extending the elimination or waiting period before you start receiving monthly benefits. The longer you delay taking benefits (90 days instead of 60), the lower your premiums will be.