Most people cannot afford to become disabled. Most workers, including 70% of Americans, live “paycheck to paycheck.” Unexpected illnesses and injuries cause 350,000 personal bankruptcies each year. Disability causes nearly 50% of all mortgage foreclosures. Another 2% are caused by death.
If you became disabled and your income suddenly decreased or stopped, would you be able to pay your bills? Could you pay your rent or mortgage, make your car payment or continue contributions to your 401(k) account? Most people are too busy or just don’t want to think of the unthinkable. There are several solutions: Save money through an appropriate savings vehicle; create alternate income streams (like rental property) that generate income without you having to “work” in the traditional sense; and buying disability insurance.
Most people cannot overcome a disability. The statistics show that most lose their homes and file for bankruptcy. But, those things do not have to happen. It requires a combination of all of the options mentioned above to overcome the financial challenges that disability brings.
Trying to find a disability insurance policy can be overwhelming. What you can buy and for how much will vary greatly. Keep these things in mind when shopping for a policy:
Eligibility/income and participation limits. There is a maximum amount of disability insurance you are eligible for based on your income and the amount of other group or individual disability benefits you have in force.
Choose riders carefully. Riders are benefits that are added on to the policy. Prioritize which riders are most important to you. The policy illustration should list the individual rider cost for each policy.
Look for available discounts. Discounts range from 15% to 55%.
Look at company ratings. It is important to look closely at a company’s financial ratings by 3rd party services. Look for companies that have an A+ or A++ rating by AM Best to ensure quality and stability.
Look at the overall picture. Cost of disability insurance is important. However, disability insurance is a complex product and there are variations from policy to policy. Least expensive does not always mean the best fit for your situation.
Work with a broker who specializes in disability insurance. Working with a broker provides you with an objective perspective since they do not work for any particular company. Brokers work on your behalf, not that of the company. Furthermore, brokers can represent multiple companies. If you work with agents of a company, they will most likely only show you one company (the one on their business card). That may or may not be the best fit for you. Furthermore, disability insurance can be very complex. Be sure to work with someone who really knows this area of insurance.
Consider a business policy. Are you eligible for a business policy? This will change things greatly.
It is a lot to consider. But, the potential downside and the odds of it happening to you or someone you love are too high to not plan for a disability.
