Disability Insurance

March 11, 2010

When it comes to protecting your financial future there are a few indisputable strategies. They include saving money for emergencies, planning for retirement, and staying out of debt. That being said, there are some other smart financial strategies that many people overlook. One of them is purchasing long-term disability insurance. Here is some advice about it.

What Is Long-Term Disability Insurance?

Disability insurance is insurance that protects you should you become physically unable to work. It’s used to protect your future earnings. Now you may be thinking, isn’t that what my emergency fund is for? Well, to a large part it is; however, your emergency fund may be used up quickly should you have an accident, and disability insurance will last a lot longer.

If you count on your job to survive (we’re talking about food, rent and utilities), then disability insurance is probably a good idea.

There are two types of disability insurance – long term and short term. Short term covers a percentage of your salary if you’re out of work for less than six months. If you have an emergency fund, then this type of insurance policy may not make sense.

However, long-term disability insurance covers 50-70% of your salary for five or ten years, or even up to the age of 65. So you can see why this type of insurance could be extremely valuable. If something were to happen to you – illness or injury, you know you would still be able to afford the basic things you need to survive.

How Do You Find Disability Insurance?

  • Many companies offer disability insurance along with life insurance and health insurance. Review the options and the cost. Quite often the rates are very competitive. However, it pays to compare prices with other insurance providers.
  • It’s important to read the terms. Most policies pay out at the salary you make at the time you purchase the policy. Additionally, you’ll also want to make sure there are no applicable pre-existing exclusions. Finally, look for policies that are “guaranteed renewable” and “non-cancelable.” Guaranteed renewable means the insurance company can’t drop you from the policy, unless you fail to make a payment. Non-cancelable means the insurance company can’t raise the cost of your monthly premiums.
  • Review riders. Most disability policies come with a variety of riders. For example, you can get a cost of living rider which increases your payout depending on the rate of inflation. These riders cost more but they may be worth it.
  • Finally, make sure you don’t participate in any activities that would preclude you from receiving benefits. For example, many policies exclude extreme sports like rock climbing.
  • When taking care of your financial future it’s important to consider long-term disability insurance as part of your plan. It may make great financial sense to protect yourself to provide a long and happy future.

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