What are your most valuable assets? Most people would put their home, their retirement savings, and maybe their automobiles, on that list. But an often-overlooked asset isn’t a physical object—it’s your ability to earn money.
Think about it. If you earn, say, $100,000 a year, that money pays for your living expenses as well as your physical property. Over 10 years, your ability to earn money is worth, in this example, $1 million. And this asset hasn’t come cheap—your investment in it probably includes a college education and lots of hard work. Just as we insure valuable property, we should take steps to protect our ability to earn money.
Becoming disabled, through illness or injury, can be very costly both from a medical perspective and, if you are unable to work for an extended period, in terms of lost earnings. But it’s more likely than many of us think.
The Social Security Administration estimates that the average 20-year-old worker faces a 30% chance of becoming disabled at some point before age 65. In fact, while most people prioritize life insurance ahead of disability insurance, there’s a greater chance of being unable to work because of illness or an accident than there is of dying prematurely.
It’s likely, if you work at for sizeable employer, that your benefits package includes a group disability income insurance policy. Many employers provide both a short-term policy and long-term disability coverage. That’s a good start, but group coverage benefits are typically not sufficient. What’s more, many people assume Social Security disability benefits will be available to pay the bills if they became disabled. However, these payments are small and difficult to qualify for. That’s where private, supplemental disability insurance comes in.
It’s typically a good idea to buy coverage that will replace 50% to 70% of your income. Insurance companies rarely offer more than that because they want to encourage you to return to work at some point. That being said, each person’s situation is different, and factors including your savings and sources of non-work income are important to consider. Your wealth advisor can look at these factors as well as any current coverage to help you determine how much supplemental insurance you might need.
To start building your coverage, buy into your group plan if your employer offers one. These plans don’t typically require a medical examination or background information, and their coverage is less expensive than private insurance.
Disability insurance isn’t just for younger people, by the way. Your 50s are likely your peak earning years, and can be especially important in shoring up your retirement savings. What’s more, it may be your last opportunity to obtain coverage, as most insurers don’t offer individual disability policies beyond age 59 or 60. Once you’re retired and don’t need to earn new money, you can do away with disability insurance.
Please don’t hesitate to contact us if you have questions or would like to discuss protecting your income.