Don't Overlook the Risk of Disability

October 19, 2007


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You may well understand the importance of having life insurance to protect your loved ones’ financial security in the event of your death. But are you prepared for the possibility that you may someday become disabled? Generally, until you reach your mid-50s, your chances of becoming disabled in the near term are significantly greater than your chances of dying during the same period. Disability is a risk you need to manage.In a previous edition of Financial Insights, we explored long-term care insurance, which, in the event you become disabled, can help cover the cost of custodial care (assistance with carrying out activities of daily living, like dressing and bathing). Now, let’s talk about disability insurance, which can replace at least a portion of your income in the event you become partially or totally disabled and find yourself unable to work.

Group Coverage

Your employer may include a group disability plan as part of your employee benefits package. Typically, a group disability plan provides short-term and long-term disability benefits. When you’re ill or injured and unable to work, short-term disability benefits allow you to receive a certain percentage of your regular pay for a limited time after you’ve exhausted your sick leave or paid-time-off (PTO) days. The cost of short-term disability coverage is employer-paid.Long-term disability (LTD) benefits take over after short-term coverage has run its course. LTD benefits allow you to receive a certain percentage of your pay until your disability ends or you reach age 65, whichever happens first. Your employer may provide a basic level of fully-paid LTD coverage and give you the option to purchase supplemental LTD coverage through the same group disability plan. Basic LTD coverage typically pays around 60 percent of your regular pay up to a maximum monthly benefit.

Individual Coverage

Many insurers offer individual (as opposed to “group”) disability plans for sale outside the employee benefits arena. Especially if you work for a smaller employer, you may not have either short-term or long-term disability coverage as part of your benefits package, so individual coverage is something you should consider purchasing on your own. But even if you do have group disability coverage through your employer, consider buying an individual plan as an alternative to supplemental group LTD coverage. Supplemental group LTD coverage might cost less than individual coverage, but the individual plan might offer valuable perks not available through the group plan, such as cost-of-living increases in your benefit. Also, an individual plan stays in effect regardless of where you’re employed, but if your leave your employer, any group disability coverage you have through that job will end. (You might be allowed to convert to an individual plan at that time.)At Grand Wealth Management, we help our clients understand the risks they face and how to protect their income and assets with insurance. When it comes to disability insurance, we can help people make informed decisions about appropriate types and levels of coverage, based on personal needs and preferences.