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June 2013 Bulletin: Malpractice

8 Tips Regarding Disability Income Insurance

Jennifer N. Shea, J.D., MBA, CFP®, CRPC®

— Jennifer N. Shea, J.D., MBA, CFP®, CRPC®

If you're unable to work due to a sickness or injury, disability income insurance can help you meet expenses and maintain your standard of living. It can help you pay bills like your mortgage, tuition and car payments, and help cover expenses for food, clothing and utilities. By replacing a portion of your income, disability income insurance can help provide financial stability until you get back on your feet and return to work.

Short-term disability insurance can replace a portion of your income during the initial weeks of a disabling illness or accident. Long-term disability insurance can replace a portion of your income after those initial weeks, for an extended period. You may have one or both of these through your employer. Many people also choose to purchase individual disability insurance on their own. Individual disability income insurance can provide protection for people who do not have disability insurance available through their workplace or may be used to supplement group coverage through their workplace.

No one knows what the future holds, so it's important for you to do your best to prepare for what life may bring. Based on our experience in helping clients through an emotionally and financially difficult time, we've created these 8 Simple Tips to share our point of view and provide guidance and answers to common questions about disability insurance. Certainly, everyone's circumstances are different, but these will help you get started and make the best decision based on your specific needs.

  1. If you or others depend on your income – You should consider purchasing disability insurance. If you have people who depend on your income – of if you depend on your income – you should consider disability insurance. Many people may be surprised to learn that Social Security disability benefits are not available if you are expected to be out of work for less than a year. One year without income could deplete your savings and have a significant impact on your finances.
  2. Disability insurance replaces a portion of your income when you can't work. If you were unable to work due to illness or injury, disability insurance can help to pay your most essential expenses, including food, utilities, school tuition, mortgage payments and car payments.
  3. Most long-term absences are due to illnesses, not accidents. While many people think that disabilities are typically caused by accidents, the majority of long-term absences are actually due to illnesses, such as cancer and heart disease. Only 10% of long-term disabilities are due to injury.1
  4. You may need disability insurance even if you're young and healthy. Almost 1 in 4 of today's 20 year olds may become disabled before reaching age 67.2 It may be easier and less expensive to get disability insurance when you're young and healthy.
  5. The risk of a disability during your working years may be greater than you think. The risk of suffering a disabling illness or injury may be more likely than you realize. The average 20 year old is twice as likely to become disabled than to pass away before age 67.3 Disability insurance helps you to maintain a steady stream of income when you can't work due to illness or injury.
  6. A good rule of thumb is to protect 60%-80% of your after-tax income. You will need to meet your essential living expenses if you should become disabled. Approximately 72% of consumer expenditures are to cover essential expenses like housing, food, transportation, health care and education.4
  7. Some disability insurance is better than no disability insurance. When budgets are especially tight, it still my make sense to purchase sufficient disability insurance to cover the rent or mortgage and keep your family in their home should you become disabled.
  8. Make sure you know how much disability insurance you get at work. A good place to start is to see if disability coverage is made available to you at work. You might want to look carefully at the coverage, however, since group benefits alone may not be enough due to the amount of income being replaced, potential benefits limitations and types of income covered.

There are several ways to obtain disability income coverage. As previously mentioned, some companies provide their employees with group coverage. In addition, various associations offer disability income benefits for members. You may also purchase and individual disability income policy yourself. Rates vary according to your age, health, occupation, and the policy features you choose.

So many people recognize the need for disability insurance, but don't move forward because they don't feel they have a reliable place to start. Your Financial Advisor can provide you with the information and knowledge you need to make an informed decision. For more information, click here.

References

  1. 2011 Long-Term Disability Claims Review, Council for Disability Awareness.
  2. Social Security Fact Sheet, April 2012.
  3. Social Security Fact Sheet, April 2012.
  4. Consumer Expenditures (US Department of Labor Statistics, October 2010).

Jennifer N. Shea serves as an Estate and Business Planning resource at Baystate Financial Services. In this role, Jennifer works with Financial Representatives to provide subject matter expertise to help identify and create customized solutions for clients. Jennifer is a Registered Representative of New England Securities, Corp. (Member FINRA & SIPC). New England Securities, Corp. and Baystate Financial Services are not affiliated entities. Jennifer can be reached at jshea@baystatefinancial.com.

Securities and investment advisory services offered through New England Securities (NES)(member FINRA/SIPC), a registered investment advisor. Baystate Financial is not affiliated with NES. Branch Office: 200 Clarendon St., 19th Floor Boston, MA 02116. L0513325114[exp0714][All States][DC}

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