Help protect your income
Don't let a disability derail your financial future. Learn how to help keep your savings for retirement on track.
What if an illness or injury kept you from working? How would you pay your bills and continue to save? That scenario may sound far-fetched when you're a young adult, but consider that just more than one in four 20-year-old individuals will become disabled before reaching normal retirement age (age 67).1 Individual disability income insurance offers a way to help protect your income. It provides monthly benefits to help meet your day-to-day needs and keep your long-term savings goals on track in the event you can no longer earn an income.
Many young adults don't think to purchase income protection insurance that could help if they ever become disabled — even though coverage is usually most affordable when you're young and healthy. "It's not a top-of-mind issue for young adults," says Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute. "Plus, young people typically have limited income, and there are more enjoyable ways to spend money." The fact remains, though, that considering income protection is an important part of a sound financial strategy.
Why purchase individual disability income insurance?
Bottom line: because it helps protect your income. Individual disability income insurance replaces a portion of your earnings if you become too sick or hurt to work. "Some of the money you earn isn’t immediate cash in your pocket," Weisbart says. It also includes contributions to your retirement accounts. With individual disability income insurance, you choose how to use the cash benefit, just like you’d choose how to allocate your income. A portion of your benefit could cover everyday expenses. You can use the other portion to continue building your retirement savings.
What does it cover?
Individual disability income insurance provides benefits when a medically determined illness or injury prevents you from performing your job. Medical illnesses are the most common cause of disability, particularly those caused by musculoskeletal conditions, such as back pain, carpal tunnel or arthritis.2 Carefully review the specifics of the policies you're considering. Each policy will indicate what constitutes a disability and when benefits are available. Often, carriers also will offer a benefit in the event of a partial or "residual" disability (when you’re able to work in some capacity).
Most policies offer the option of including additional riders that enhance the protection provided.
» Contact a financial professional for more information about these optional benefits.
When does it go into effect?
Policies have a waiting period or elimination period. This is the period of time you must wait before being eligible to receive benefits. Consulting with a financial professional can help you determine the right waiting period length for your needs. Common waiting periods are 90 or 180 days. Longer waiting periods usually mean lower premiums.
How long do you receive benefits?
The length of time your individual disability income insurance provides benefits is called the benefit period. For a short-term coverage need, a benefit period of two or five years is common. For long-term coverage, benefits are typically available until retirement age, or even the rest of your life. Shorter benefit periods often mean lower premiums, while longer benefit periods provide richer coverage.
How much do you need?
Weisbart recommends getting enough coverage to replace 60 to 70 percent of your gross income. The coverage costs just around 1 to 3 percent of your income each year.
» Find out how much you may need with our disability insurance income calculator.
What if I have group disability coverage?
Your employer may offer group disability benefits to help replace a portion of your earned income. You can supplement this coverage with individual disability income insurance. It wraps around your group benefits to help protect more of your income. Plus the individual policy is portable, so it goes with you if you change jobs. (Group coverage does not.)
Get help with your benefits
Contact a financial professional to learn how disability income insurance can be a part of your financial protection strategy.