What is disability insurance?
Do you need disability insurance?
How to buy disability insurance - if you need it
The need to insure your income in case you're injured
Most Americans don't even think about this type of insurance
You need to determine if you need this kind of insurance
- Likelihood of being disabled is greater than chances of dying before age 65
- Consider buying if you're single and have dependents
Your employer may already provide coverage
Social Security provides some coverage
Average Social Security disability payment for a person with a spouse and two children is $1,100 per month
Five month waiting period before Social Security benefits start
You need an emergency fund of three to six months of expenses
A spouse can re-enter the workforce if necessary
Another alternative is saving through an IRA, 401(k) or similar account
- May be better than spending thousands a year on disability insurance premiums
- These funds can be accessed without penalty if you're disabled
The definition of "disability" is very narrow for most policies
Most disability payments are reduced by payments from Social Security, auto or other insurance
Premiums depend on your income
The higher your income, the higher the premium
A 40 year-old man who makes $60,000 annually may pay $2,000 or more a year in disability insurance premiums
Buy enough insurance to cover 80 percent of your current income
- Expenses will probably drop with disability
- No income taxes on benefits if you buy the policy yourself
Cut premium costs by getting a longer elimination period
Elimination period is time (three to nine months or more) when the insurance company won't pay you benefits
Be very careful about how the policy defines "disability"
If you can't do old, high-paying job but can still work, you may not get benefits
The classic example of a doctor who suffers a hand injury
Can't perform surgery but can flip burgers
No disability income benefit, depending on the policy's terms