A number of resources are available for income protection during a period of disability. Many U.S. workers have sick-pay benefits that can help ease the burden of a short period of disability, such as four weeks. Some employers offer group disability income insurance, although typically the coverage lasts for only a short term (less than two years). In addition, many pension plans provide benefits to workers who become disabled while still employed. Such benefits plans, however, fall far short of fully meeting the needs of young and middle-age workers, who may have accumulated only a small amount of retirement funds.
Disability income insurance replaces a portion of the income lost when you cannot work because of illness or injury. Although it is probably the most overlooked type of insurance, it is vitally important for all workers. For example, a 22-year-old without dependents would probably need no life insurance butwould likely need disability insurance to support himself during a period of disability.
Social Security disability income insurance is designed to help replace a portion of the lost income of eligible disabled workers. Benefits begin after a five-month waiting period and the disability must be total. That is, the recipient must not be able to engage in any substantial, gainful activity. Social Security disability income protection may provide more than $20,000 annually in tax-free income to the family of a fully insured disabled worker. See Appendix B at the end of the book or the Garman/Forgue website for an illustration of how to estimate these benefits, or visit www.ssa.gov/top10.html.
Level of Need
The first question to ask when contemplating disability income insurance is, “How much protection do I need?” The dollar limits on disability income policies are written either in increments of $100 per month or as a percentage of monthly income. Most companies limit policy coverage to 60 to 80 percent of the insured’s after-tax earnings
Determining the amount of protection needed is challenging because some sources of help may not actually be available for all disabilities. A less severe disability that does not qualify for Social Security disability income insurance may create a need for more disability insurance than a more severe disability that does qualify for Social Security. And employer-based disability benefits tend to cover short-term, but not long-term, disability. It is smart to complete the calculations in the Decision-Making Worksheet,
Disability income insurance replaces a portion of the income lost when you cannot work because of illness or injury. Although it is probably the most overlooked type of insurance, it is vitally important for all workers. For example, a 22-year-old without dependents would probably need no life insurance butwould likely need disability insurance to support himself during a period of disability.
Level of Need
The first question to ask when contemplating disability income insurance is, “How much protection do I need?” The dollar limits on disability income policies are written either in increments of $100 per month or as a percentage of monthly income. Most companies limit policy coverage to 60 to 80 percent of the insured’s after-tax earnings
Determining the amount of protection needed is challenging because some sources of help may not actually be available for all disabilities. A less severe disability that does not qualify for Social Security disability income insurance may create a need for more disability insurance than a more severe disability that does qualify for Social Security. And employer-based disability benefits tend to cover short-term, but not long-term, disability. It is smart to complete the calculations in the Decision-Making Worksheet,
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