Q: Our next-door neighbor recently suffered an injury, which has left him unable to work. They are really struggling to make ends meet. Is there some type of insurance product that will replace lost income in a situation like this?
We’re really losing sleep over the idea of something similar happening to our own family. What are our options?
A: Great question! You brought up a need that many of us fail to address. Putting some savings into an emergency fund can help you survive financially in short term emergencies. However, if your income were to suddenly stop for a longer period of time, what can you do?
Luckily, there are insurance products that will replace lost wages in the event that you are unable to work due to injury or illness. If you’re worried about suffering a similar fate as your neighbor, your family should consider investing in disability insurance.
This is important insurance to carry, as there is a 30% chance of becoming disabled during a working career.
A disability actually has the potential to be more financially disastrous than death.
Consider these points:
There are two types of policies:
1. Short-term policies that pay for up to two years.
2. Long-term policies that can last the rest of your life or expected working career.
Like any other type of insurance, the higher benefit amount you want, the more it will cost.
Get a sufficient amount of coverage to replace enough of your income so you can still live comfortably during your disability, no matter how long it lasts.
The least expensive policies are likely to be offered through your place of employment, so check with your human resources department. There are also many standalone policies available. Take the time to shop around.
Most policies have a waiting period before they start to pay out. Keep in mind that you should always have enough money in an emergency fund to cover all of your expenses during this waiting period.
It’s important to realize that many policies will reduce their payouts if you receive social security, disability, or worker’s compensation. Also inquire about whether or not the payments adjust with inflation. Some policies will make payments to your retirement (pension) plan and some won’t.
Social Security pays disability benefits to the breadwinner and certain members of their family. To be eligible, the breadwinner must have worked enough years and have a medically related condition that prevents working for at least the next 12 months.
Social Security also pays if the disability is expected to end in death.
Disability insurance is one of the least carried types of insurance, but it’s also one of the most important. The likelihood of needing this insurance at some point is great, so ensuring that you and your family are covered can bring you great peace of mind.
