What would happen if you were permanently injured or became too ill to work? You might qualify for disability payments from Social Security, but would you be able to survive on the average payout ($1,165/month as of April 2015)? Maybe you have some savings, but would they be adequate to cover your living expenses until you’re old enough to collect retirement benefits? If you answered “no” to either of these questions, you should consider buying disability insurance.
Like every other type of insurance, a disability policy is designed to protect something. You buy homeowners insurance to protect your home and the personal property within it. You buy life insurance to protect your family when you eventually pass away. Disability insurance basically protects your income—something that’s especially important during your peak earning years (now defined as age 40 to 55.) Not only do most professionals earn their highest salary during this time, they actively use it to pay down debt and save for retirement.
As most insurers won’t offer disability policies to individuals over the age of 59, now is likely your best time to buy one that will carry you through to full retirement age. As with health and life insurance, the older you are, the more expensive obtaining disability insurance will become. Less than perfect health can make it more difficult, though not impossible. You may still be offered a policy, but it may include exclusions for health issues—such as back problems—for which you’ve regularly sought treatment.
Before you pursue an individual disability insurance policy, check with your employer about group policies. If the company you work for offers one, you may be able to obtain coverage without going through medical underwriting. This can make the process easier and save you money. If your employer does not offer supplemental disability insurance, you’ll want to find a provider who offers guaranteed renewable policies with fixed costs and terms.
In general, experts recommend a disability insurance policy that will replace 60 to 70 percent of your salary. Women are often charged more for the same amount of coverage as men because they are 35 percent more likely to become disabled. Increasing the waiting period on the policy—from 90 days to 180 days, for example—can decrease the price. So can choosing a shorter term. If you and your partner buy policies together, you may also score a discount.
When you apply for a disability insurance policy, the underwriter will look at your health (unless you’re getting insurance through your employer), occupation and finances. You may need to provide tax returns as proof of income. It can be an invasive process, but when you consider the peace of mind disability insurance affords—especially during those peak earning years we mentioned earlier—it’s more than worth any minor hassle. Contact us to discuss the benefits of disability insurance further and explore your options.