Disability Insurance

If you ask most people to identify their most important asset, they’ll likely point to their home or car. Guess what? They’re wrong. Almost everyone’s most important asset is the ability to earn an income. For this reason, your overall financial strategy should probably include a disability insurance policy. Disability insurance insures your paycheck, providing an income if you become disabled and unable to work.

Most disabilities arise from a medical condition. Sometimes, they are associated with aging, but often the medical problem is caused by an accident or some other unforeseen problem. Many people associate disabilities with work and think they might be worker’s compensation benefits. But according to the National Safety Council, 73 percent of disabling accidents and illnesses are not work-related.

How Much Disability Insurance Do You Need?

You should have enough coverage to enable a decent lifestyle if you can no longer work. Determine how much you are currently spending and what it would take to just “get by.” You will probably want to be insured for an amount between those two levels. You can also take into account any other sources of potential income, like investments. Policies are offered on a "dollars per month" basis and you usually cannot insure yourself for more than your current earnings. Of course, a larger benefit requires a higher premium payment now.

Proceeds from a disability policy are generally tax-free if you pay the premiums. However, if your employer provides coverage, you will have to pay tax on the benefit payments and may want a higher level to cover the taxes.

Other Issues

Definition of disability - Examine the policy's definition of disability. Some policies ("own occupation") provide benefits if you cannot perform the work you usually do. Others provide benefits only if you cannot perform a job you are reasonably trained to perform. "Own occupation" policies are usually more expensive and may not be worth the extra premiums if there are other jobs you could perform easily that would provide a similar level of income and you would find rewarding.

Guaranteed renewable or non-cancelable - These words are important. They both mean you cannot be dropped because of poor health. However, "guaranteed renewable" usually does not mean the insurance company cannot raise its rates. Make sure to read the terms of the policy carefully.

Waiting period - This represents the time you must wait after you are disabled before you can start getting benefits. Many policies offer different waiting periods (typically as short as 30 days or as long as a year). The shorter the wait, the higher the premium. If you have other assets you could use for living expenses for a period, you may want to consider the longer waiting period with a lower premium.

Insurance company financial status - Be sure to check out the insurer. While there may be some form of state insurance fund protection, if your insurance company has financial difficulties, it may create some hardships for you. You can often find insurance ratings at your library or on the internet. You can also ask the insurance agent for a report from an insurance company ratings agency.

Getting Disability Insurance

Most large companies offer disability insurance as part of their benefits package. If you work for a smaller company or are self-employed, you may need to find your own policy. You may also wish to investigate whether any professional organization you belong to offers these types of policies.


Having disability insurance is almost a necessity, especially for younger people, those with limited assets and those with families dependent on a breadwinner's income. The good news is disability insurance is readily available from many sources.

Determine how much and what kind you need. Check your employer's benefits program for availability. Make sure you have the protection you need.

    This content has been provided by Financial Wisdom and is intended to serve as a general guideline.