Disability Income Protection—Are Your Bases Covered?


Disability Income Protection—Are Your Bases Covered?

Like most people, you may have life insurance to help protect your family against the financial impact of your unexpected death. You may also insure your home, car, and other personal possessions against financial loss resulting from fire, theft, or damage. However, you may have overlooked insuring one of the more important aspects of your financial life—the ability to earn an income.

Thinking the Unthinkable

Have you ever contemplated how long the combined resources of you and your spouse might last if you were suddenly out of work due to a disability? What long-term impact would exhausting your savings during a disability have on your ability to provide for your family and even yourself during your retirement years? If those resources provide less than your monthly expenses, including taxes and regular savings, or if exhausting them would significantly impact your ability to provide for yourself and your family on a long-term basis, you may need disability income insurance. Whether you need an individually owned policy depends on the extent of your liquid assets, your spouse’s income, and other potential sources of disability income, such as employer-sponsored group disability insurance, Social Security, and veterans or union benefits.

Depending on your income and the risk level of your occupation, the maximum coverage you can buy will generally replace 45% to 75% of your pre-disability earnings. The higher your income, the lower the percentage of replacement benefit may be. Typically, premiums will depend on your age, your health, the risk level of your occupation, and the type of coverage.

Examine Policy Provisions

To make sure your disability income insurance offers the protection that you and your family need, your policy should include the following:

  • A definition of total disability that is consistent with the risk of your occupation. You may also want to look for a policy that pays some benefits in the event you are not totally disabled, but you suffer a “loss of income” due to a disability. Often these provisions are called partial or residual disability provisions.
  • A non-cancelable clause that states the insurance company cannot cancel the policy or increase the premium until a certain age (as specified in the policy).
  • Benefits that are payable for the maximum amount of time for which you are eligible based on your occupation and health. Most often, you can find policies that provide benefit eligibility for two years, five years, or all the way until you reach age 65, or even payments beyond 65 for the rest of your life.
  • A waiting period that is consistent with your overall financial resources. The waiting period is the amount of time you must be disabled before becoming eligible for disability benefits. The longer the waiting period you choose, the lower the premium on your policy will be. Typically, you may purchase coverage that provides eligibility for benefits after 30 days of disability or for as long as after two years of disability.

Act Now

Now is the time to investigate the relative benefits and costs of disability income insurance to determine how much you need to spend to attain adequate protection. In addition, it is important to review the particular details and provisions of the policy you are considering with a qualified professional to help ensure your financial needs will be met.

Copyright ã 2010 Liberty Publishing, Inc. All rights reserved.

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This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116

In the Spotlight: Disability Statistics

How secure will Social Security help you be if you are unable to work? It is emotionally difficult to prepare for the possibility that you may suffer a disability as a result of an accident or illness, but it is financially imperative to plan. Your quality of life tomorrow may depend on your efforts today.

The Latest Figures

The Social Security Administration (SSA, 2010) estimates that three in ten of today’s 20-year-olds will suffer a disability before reaching age 67.1 In another sobering statistic, the SSA reports that 69% of the private sector workforce has no long-term disability insurance.2 Essentially, seven out of ten workers would have to rely on their own personal savings, limited state-run insurance, and Social Security for replacement income in the event they could not work because of a disability. In 2009, the estimated average monthly Social Security benefit for all disabled workers was $1,006.3 Over the course of a year, that totals approximately $12,072, and for many workers and their families, that is significantly less than their annual expenses.

Men vs. Women

Throughout history, men have generally earned more than women. The SSA reports (2010) that as of the year 2007, the average salary for women was 78% of the average for men.4 This disparity affects women in two ways. Because disability benefits are based on earnings, the benefits for disabled male workers are typically higher than those of disabled female workers. However, the spousal benefit for widows is generally higher than that of widowers for the same reason—the median income of men is higher than that of women. These demographic trends are important to consider for families planning their financial security.

Supplemental Income Sources

In addition to Social Security and personal savings, there are additional options for workers and their families. Personal disability income insurance is a viable option for workers looking to manage the risk of losing their income. It offers coverage beyond workers compensation, which is state-run insurance that replaces a percentage of an employee’s income only for injuries that occur on the job or illnesses that are work-related.

Disability income insurance policies vary, but here are some key questions to ask:

  • Are you covered for both accidents and illness?
  • Does the policy define disability as the inability to perform your own job or any gainful employment?
  • How long must you wait before benefits begin?
  • How long will benefits last?
  • Does the policy offer cost-of-living adjustments?
  • Are benefits available for total and/or partial disability?
  • What percentage of income will the policy replace?

Disability income insurance policies contain, exclusions, limitations, reductions of benefits and terms for keeping them in force.  Speak with your representative for costs and complete details.

If you lack insurance against disability, or are underinsured, you are possibly exposing yourself to serious financial risk. Avoid becoming another statistic—plan your future today.

1The Social Security Administration, “Social Security Protection If You Become Disabled,”


2The Social Security Administration, “Social Security Basic Facts,” www.ssa.gov/pressoffice/basicfact.htm.

3The Social Security Administration, “2009 Social Security Changes,” www.ssa.gov/pressoffice/factsheets/colafacts2009.htm.

4The Social Security Administration, “Social Security Is Important to Women,” www.ssa.gov/pressoffice/factsheets/women.htm.

Copyright ã 2010 Liberty Publishing, Inc. All rights reserved.

L0410101948(exp0511)(All States)(DC)

This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116