Your ability to earn an income may be one of your most valuable assets. Think about your house, your car, your watch or jewelry. Would you go without homeowners insurance or car insurance? Shouldn’t you consider protecting another important asset, your paycheck?
You and your ability to earn an income may be a large part of what your entire financial future is based on. From building a home, affording college for your children or saving for retirement, these things may all depend on your ability to continue to earn a living.
Understanding the riskJust about everyone who has a job needs some sort of disability income insurance, including those who work in the home. According to a Life Happens survey, you have a three in 10 chance of suffering an illness or injury in your career, which would keep you out of work for three months or more. Whether you’re an income-earner or stay-at-home parent, the value you provide will need to be replaced.
The financial consequences can be far reaching. A 25 year old worker who makes $50,000 a year and suffers a permanent disability could lose $3.8 million in future earnings according to the Life Foundation.
Workers compensation is a fallback option for many workers; however, these programs only cover illness or injury that strikes at work, and a 2013 study from the Council for Disability Awareness shows that only five percent of disabilities happen in the workplace.
What coverage is right for you?
When thinking about your disability income insurance needs, there is no substitute for a thorough needs analysis conducted by a financial professional. Be sure to consider both your short-term and long-term expenses, as well as alternative income streams such as investments or group disability coverage.
Generally, most individuals can get coverage for up to 70 percent of their earned income. Some employers offer group disability coverage, so check what type of coverage you may currently have, as it will affect how much additional coverage you may qualify for.
Key TermsBelow are some key terms to know when considering the type of coverage you would need.
Elimination period: The amount of time you are required to wait after a disability occurs before you can receive benefits, which traditionally ranges between 30 and 90 days.
Benefit period: A policy option concerning the amount of time you may receive benefits, which can range from several months to several years, or to age 65 or 70, depending on your specific needs and the plan options available.
Taxable or tax-free income: If your employer pays your insurance premiums, any benefits you receive will be taxable because they are considered income. If you pay your premium with after-tax dollars, then your benefits will be tax free (according to current IRS regulation).
Retirement: When considering coverage needs, keep in mind that you may want to continue funding for your retirement needs, even if you are not working.
Definition of disability: Some plans pay benefits if you can no longer perform the duties of your current occupation, while others pay benefits only if you are unable to perform the duties of any occupation. Still, others will pay benefits on loss of earned income. Each option offers a different level of cost and benefit.
While no one wants to think about losing their ability to work, it is important to consider a plan for your financial future, so you know what you could do if you were unable to earn an income.
This article was prepared by Thrivent Financial for use by Tri County Area representative John Lauer. He has offices at 3821 Main Street in Morgantown and can also be reached at 610-286-5986.