Many people own life insurance but, at our firm, we see fewer people who own disability insurance. Why might one need disability insurance? Often one’s biggest asset is one’s ability to earn an income. Calculate the present value of a future income stream, and the resulting value is usually pretty large. Disability insurance is designed to replace some of this income in the event of a short-term or long-term disability. And, contrary to what one might think, a disability need not be the result of some catastrophic event; one might not be able to work due to a skiing accident, running injury, or some other unexpected event that arises from an activity one enjoys. According to the Council for Disability Awareness, “Musculoskeletal system and connective tissue disorders remain the leading cause of new and ongoing disability claims….”
As we all know, however, buying insurance often feels like gambling. What are the odds one might need to file a claim? Listen to some insurance companies and they’ll scare you into buying disability insurance with inaccurate statistics. This helpful article by Ron Lieber over at The New York Times points out some of the fallacious reasoning behind such claims, and it goes on to point out that the odds of a long-term disability that will keep one out of work for more than 90 days are around 30%. These odds, he goes on to explain, could be even lower depending on one’s occupation. If you want to know your odds, here’s a helpful calculator that will take into account your own occupation and circumstances.
For short-term disabilities, a good cash reserve can help pay immediate expenses. Longer term disabilities lasting more than 90 days often need to be insured. For many of our clients, this insurance is provided through a group benefits plan. Many of our clients, however, have never looked at their group disability plan, and many aren’t aware if they even have one. The bottom line, as Lieber rightly points out, is that “A majority of American adults have no private, long-term disability insurance, which can replace a chunk of their salary when they get hurt or become sick for several months or more. Many who do have coverage may not have enough. On this, most prudent financial planners agree.”
What is more, things can get complicated when one learns that disability benefit plans rarely cover more than 60% of one’s salary, often have confusing definitions of disability, can be coordinated with Social Security and other benefits that one may or may not obtain, and can also be taxable. While you don’t need to be scared into buying something based on inaccurate data, a long-term disability is still a real risk that needs to be given serious consideration when doing responsible financial planning. At Dunston Financial Group, we regularly analyze our clients’ disability needs and policies. Sometimes we recommend they keep them and other times we advise them to get rid of them. The good news is that we don’t sell insurance, so our clients can rest assured knowing that we’ll give objective advice that is always in their best interest. If it’s time for a disability checkup, please feel free to get in touch with us here.