By Joanna G. Burish
When I ask people, “What is your biggest asset?” nine times out of 10 they’ll respond that it’s their house. In my experience, that’s the wrong answer! Think about it: Who pays for that house, that car in the garage, those beautiful furnishings? It’s YOU — more specifically, your ability to work and earn a living to pay for the lifestyle you lead.
Why is it then most people find value in insuring their home or apartment, their car, their business, but not the main resource that pays for all of these things, which is your income? That’s where disability insurance has your back. This kind of insurance pays you a monthly benefit if you become disabled. The most common types of disability are: Pregnancy, digestive disorders, musculoskeletal disorders, cancer, injuries and mental health conditions.
To put the importance of disability insurance into perspective, statistically, 1% of homeowner insurance policies pay for fire damage, and 2% of car insurance policies pay out for car accidents. However, more than 25% of people 20 years and older will become disabled for three or more months before the age of 67. That’s one out of four of us! Disability is a common cause of bankruptcy but, with the right planning, it doesn’t have to be.
SIX THINGS YOU NEED TO KNOW ABOUT DISABILITY INSURANCE:
- Find out the details of what you may currently already have access to. Many companies offer disability insurance as part of their employee benefits package. The benefit payout ranges from 50-60% of your salary. Sometimes the employer pays for your short-term disability and requires you to pay for your long-term disability, or, they cover both. Keep in mind that since your employer typically pays for this premium, the benefit will be taxed to you, so plan accordingly to live on more like 35-45% of your income, should you become disabled.
- Consider gap disability insurance. This covers the remainder of the 40-50% your employer’s benefits don’t cover. The great advantage here is that since you personally pay for the premium of this insurance, the benefit is 100% tax-free to you. This can help maintain your lifestyle!
- Disability income insurance policies differ from state to state and vary in the details of what they cover in their features and benefits. It’s not one-size-fits-all. You may think that you have full coverage, when the rules state you have to be “totally disabled” to receive your benefit, and there are various definitions to “totally disabled.”
- Some policies state that while you may not be able to perform your current job duty, you may be able to perform another job at your company, hence the policy doesn’t have to pay (even if this new role pays less than your current role). Pay attention to this language of “the ability to perform the substantial and material duties of your occupation” and “any occupation” versus “own occupation” rules. You’ll want “own occupation” verbiage, as you’ve worked hard to get to where you are and should receive the best income your role offers.
- Disability insurance is based on your age, your income, your monthly expenses and a health underwriting process. Some policies will also consider other benefits you receive such as social security disability insurance, and may lower your benefit based on that.
- Be aware of your policy’s exclusions, limitations and reduction-of-benefit provisions. These are often in the fine print, or worse, not spelled out in the employee benefit manual. If you have a preexisting condition it may be excluded. You can request these details from your HR department, or they can request full details from your company’s provider.
To see what your plan may look like with disability insurance, or if you want a professional review of your current personal or employer’s disability policy, please reach out to me and my team. We are happy to help offer you a second opinion or review.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities and life insurance with long-term care benefits) and its subsidiaries. Joanna Burish is an Insurance Agent of NM. There may be instances when this agent represents companies in addition to NM or its subsidiaries.
While links to other websites are provided for convenience and information, please be advised that except for information related to Northwestern Mutual (NM), the inclusion of, or linking to, other websites does not imply NM endorsement of, nor responsibility for, those websites.