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Most people have life insurance to protect their family
against the financial impact of their unexpected death,
and they insure their homes, cars, and other personal
possessions against financial loss resulting from fire,
theft, or damage. However, it’s common for many
individuals to overlook insuring one of the more important
aspects of their financial life—the ability to
earn an income.
Have you ever contemplated how long the combined resources
of you and your spouse might last if you were suddenly
out of work due to an unexpected disability? If your
combined resources provide less than 60 to 70 percent
of your monthly expenses including taxes and savings,
your may be in need of disability income insurance.
Whether you need an individually owned policy depends
on the extent of your liquid assets, your spouse’s
income, and other sources of disability income (group
coverage at work, worker’s compensation, Social
Security, veterans and union benefits).
Depending on your income and the risk level of your
occupation, the maximum coverage you can buy will generally
replace 45 to 75 percent of your per-disability earnings.
The higher your income, the lower the percentage of
your replacement benefit. Typically, cost will depend
on the risk level of your occupation, your age, your
health, and the comprehensiveness of coverage.
To make certain the money you spend on disability income
insurance is buying the proper amount and type of protection
for you and your family, your contract should include
the following:
- A favorable definition of total disability that
is consistent with the risk of your occupation and,
at a minimum, ensures the payment of benefits in the
event you suffer a “loss of income.”
- A non-cancelable clause that states the insurance
company cannot cancel the polity or increase the premium
until a certain age (as specified in the policy).
- Benefits that are payable until the age 65 or for
life.
- A waiting period consistent with your overall financial
plan. The cost of disability income insurance declines
the longer you wait before receiving benefits. You
can purchase coverage that provides benefits on the
31st day of disability or up to two years later.
Now is the time to pay close attention to how much
you should spend on disability income insurance. In
addition, it is important to keep an eye on disability
and review the particular details and provisions of
the disability policy you are considering with a qualified
insurance professional.
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